BAN  IS 


THE  LIBRARY  OF  THE 
UNIVERSITY  OF 
NORTH  CAROLINA 


the  collection  of 

NORTH  CAROLINIANA 
ENDOWED  BY 
JOHN  SPRUNT  HILL 
CLASS  OF  1889 


Cp332.1 

P33b 


Pell’s  Monographs  on  the  Law  of  North  Carolina 


MONOGRAPH  No.  5 

BANKS  AND  BANKING 

BY 

GEORGE  P.  PELL,  LL.B. 

Late  a  Judge  of  the  Superior  Court,  Author  of  Pell’s  Revisal 
and  Pell’s  Forms  of  Pleading  and  Practice 


1923 


Pell’s  Monographs  on  the  Law  of  North  Carolina 


MONOGRAPH  No.  5 

BANKS  AND  BANKING 


BY 


GEORGE  P.  PELL,  LL.B. 

> 

Late  a  Judge  of  the  Superior  Court,  Author  of  Pell’s  Revisal 
and  Pell’s  Forms  of  Pleading  and  Practice 


RALEIGH 

Bynum  Printing  Company 
1923 


Digitized  by  the  Internet  Archive 
in  2019  with  funding  from 
University  of  North  Carolina  at  Chapel  Hill 


/ 


https://archive.org/details/banksbankingOOpell 


BANKS  AND  BANKING 


Chapter  I 

CONTROL  AND  REGULATION 

In  general.  Both  State  and  National  banks  are  supervised  by 
officials  of  the  Government  clothed  with  complete  and  strict  powers, 
the  State  banks  being  supervised  by  the  State  Corporation  Commis¬ 
sion1  and  the  National  banks  by  the  Comptroller  of  the  Currency. 

Supervision  of  State  banks.  The  Corporation  Commission  is 
charged  with  the  execution  and  enforcement  of  all  laws  relating  to 
State  banks,  and  for  their  more  complete  and  thorough  enforcement 
it  is  given  broad  power  to  promulgate  such  rules,  regulations  and 
instructions  as  may  appear  necessary  to  protect  depositors,  creditors, 
stockholders  and  the  public  in  their  relations  with  such  banks.2  The 
statute  prescribes  the  kind  of  banks  which  are  within  the  Commis¬ 
sion’s  supervisory  power  as  being  such  corporations,  partnerships, 
firms  or  individuals  as  receive,  solicit  or  accept  money  or  its 
equivalent,  on  deposit  as  a  business,  but  not  building  and  loan  asso¬ 
ciations,  Morris  plan  companies,  industrial  banks  or  trust  companies 
not  so  receiving  money.3  The  law  will  not  allow  the ‘chartering  of 
any  corporation  or  the  advertising  of  the  same  with  the  word  “bank,” 
“banking,”  “banker”  or  “trust”  in  its  name  except  such  as  come 
under  the  supervision  of  the  Corporation  Commission.1 

Authority  for  issuing  charter.  When  a  copy  of  the  certificate 
of  incorporation  of  a  proposed  State  bank  is  submitted  by  the  Sec¬ 
retary  of  State  to  the  Corporation  Commission  it  is  its  duty  to  ex¬ 
amine  into  all  the  facts  connected  with  the  formation  of  such  pro¬ 
posed  corporation,  including  its  location  and  proposed  stockholders, 
and  if  it  appear  that  such  corporation,  if  formed,  will  be  lawfully 
entitled  to  commence  the  business  of  banking,  the  Corporation  Com¬ 
mission  must  so  certify  to  the  Secretary  of  State,  who  must  there¬ 
upon  issue  and  record  such  certificate  of  incorporation.  But  the 
Corporation  Commission  may  refuse  to  so  certify  to  the  Secretary 
of  State,  if  upon  examination  and  investigation  it  has  reason  to 
believe  that  the  proposed  corporation  is  formed  for  any  other  than 
legitimate  banking  business,  or  that  the  character,  general  fitness, 


*1921,  chap.  4,  sec.  63. 
21921,  chap.  4,  sec.  63. 


31921,  chap.  4,  sec.  1. 
41921,  chap.  4,  sec.  81. 


252 


Banks  and  Banking 


and  responsibility  of  the  persons  proposed  as  stockholders  in  such 
corporation  are  not  such  as  to  command  the  confidence  of  the  com¬ 
munity  in  which  said  bank  is  proposed  to  he  located ;  or  that  the 
public  convenience  and  advantage  will  not  he  promoted  by  its  estab¬ 
lishment;  or  that  the  name  of  the  proposed  corporation  is  likely  to 
mislead  the  public  as  to  its  character  or  purpose ;  or  if  the  proposed 
name  is  the  same  as  one  already  adopted  or  appropriated  by  an 
existing  bank  in  this  State  or  so  similar  thereto  as  to  be  likely,  to 
mislead  the  public.1 


Authority  to  begin  business.  Before  any  company  shall  begin 
the  business  of  banking,  banking  and  trust,  fiduciary,  or  surety  busi¬ 
ness  under  a  State  charter,  at  least  fifty  per  cent  of  its  capital  stock 
must  be  paid  in  in  cash,  and  there  must  be  filed  with  the  Corpora¬ 
tion  Commission  a  statement  under  oath  by  the  president  or  cashier, 
containing  the  names  of  all  the  directors  and  officers,  with  the  date 
of  their  election  or  appointment,  term  of  office,  residence  and  post- 
office  address  of  each,  the  amount  of  capital  stock  of  which  each  is 
the  owner  in  good  faith  and  the  amount  of  money  paid  in  on  account 
of  the  capital  stock.  Nothing  can  be  received  in  payment  of  capital 
stock  but  money.  Upon  filing  of  such  statement,  the  Corporation 
Commission  must  examine  into  its  affairs,  ascertain  especially  the 
amount  of  money  paid  in  on  account  of  its  capital,  the  name  and 
place  of  residence  of  each  director,  the  amount  of  capital  stock  of 
which  each  is  the  owner  in  good  faith,  and  whether  such  corporation 
lias  complied  with  all  the  provisions  of  law  required  to  entitle  it  to 
engage  in  business.  If  upon  such  examination  it  appears  to  the 
Corporation  Commission  that  it  is  lawfully  entitled  to  commence 
the  business  of  banking,  banking  and  trust,  fiduciary,  or  surety  busi¬ 
ness,  it  must  give  to  such  corporation  a  certificate  signed  by  the 
chairman  of  the  Corporation  Commission,  attested  by  the  secretary 
of  the  Commission,  that  such  corporation  has  complied  with  all  the 
provisions  of  the  law  required  to  be  complied  with,  before  commenc¬ 
ing  the  business  of  banking,  and  that  such  corporation  is  authorized 
to  commence  business.2 


IIeports  of  condition.  Every  State  bank  is  required  to  make  to 
the  Corporation  Commission  not  less  than  three  reports  during  each 
year,  according  to  the  form  which  may  be  prescribed  by  said  Com¬ 
mission;  which  report  must  be  verified  by  the  oath  or  affirmation 
of  the  president,  vice-president,  cashier,  secretary,  or  treasurer  of 


11921,  chap.  4,  secs.  4,  5;  1921  (extra 
session)  chap.  56,  sec.  1. 


21921,  chap.  4,  secs.  6,  7,  and  8. 


CoXTBOL  AM*  EeGULATIOX 


_ 


said  bank,  and  in  addition  thereto,  two  of  the  directors,  in  the  case 
of  incorporated  hanks,  and  in  other  uses  by  the  oath  or  affirmat 
of  the  partners,  members  of  the  him.  or  individual  owner.  Each 
^uch  report  must  exhibit  in  detail  and  under  appropriate  heads  the 
resources,  assets,  and  liabilities  of  such  bank  at  the  close  of  business 
on  any  past  day  by  ~he  Corporation  Commission  specified,  and  show 
the  amount  of  money  on  deposit  in  such  bank  to  the  credit  of  the 
State  or  of  any  official  thereof,  and  must  be  transmitted  to  the  Cor¬ 
poration  Commission  within  ten  days  after  the  receipt  of  a  request 
or  requisition  therefor  from  the  Commission,  and  in  a  form  ]  re¬ 
scribed  by  the  Corporation  Commission.  A  summary  of  such  report 
mu;t  be  published  in  a  newspaper  published  in  the  place  where  the 
bank  is  located,  or  if  there  is  no  newspaper  in  the  place,  then  in  'he 
nearest  one  published  thereto  in  the  county  in  which  such  bank  is 
established.  Proof  of  such  publication  must  be  furnished  the  Cor¬ 
poration  Commission  in  such  form  as  may  be  prescribed  bv  it. 

Every  person,  firm.  poration.  or  partnership  doing  a  banking 
bu  siness.  or  a  hanking  business  in  connection  with  anv  other  busi- 

c 

ness  under  a  State  charter,  must  make  to  the  Corporation  Commis¬ 
sion  not  less  than  three  reports  during  each  year,  on  forms  pre¬ 
scribed  by  the  Corporation  Commission,  which  reports  must  be  pub¬ 
lished  a;  are  the  reports  of  other  banking  institutions.  If 
son.  firm,  corporation,  or  copartnership  shows  by  said  reports,  or 
bv  the  examination  of  anv  State  bank  examiner,  that  such  liabilities 

«.  c. 

are  equal  to  the  amoimt  of  the  capital  stock  of  such  bank,  the  Cor¬ 
poration  Commission  has  authority  and  is  empowered  to  make  such 
rules  and  regulations  for  the  reduction  of  said  liabilities  as  it  mav 

c 

deem  necessary  for  the  protection  of  the  creditors  and  depositors  of 
such  banking  institution. 

The  Corporation  Commission  may  call  for  special  reports  when¬ 
ever  in  its  judgment  it  is  necessary  to  inform  it  of  the  condition  of 
any  State  bank,  or  to  obtain  a  full  and  complete  knowledge  of  its 
affairs.  Said  reports  shall  be  in  and  according  to  the  form  pre¬ 
scribed  bv  the  Corporation  Commission,  and  must  be  verified  in  the 
manner  provided  by  law.  and  must  lie  published  if  required  by  the 
Commission  so  to  be. 

Every  bank  failing  to  make  and  transmit  an  port  which  the 
Corporation  Commission  is  authorized  to  require,  and  in  and  accord¬ 
ing  to  the  form  prescribed  by  said  Commission,  within  ten  days  after 
the  receipt  of  a  request  or  requisition  therefor,  or  failing  to  publish 
the  reports  as  required,  must  forthwith  be  notified  by  the  C  orpora- 


254 


Banks  and  Banking 


tion  Commission,  and  if  sucli  failure  continue  for  live  days  after 
the  receipt  of  such  notice,  such  delinquent  bank  is  subject  to  a  pen¬ 
alty  of  two  hundred  dollars.1 

Communications  from  Corporation  Commission,  The  Cor¬ 
poration  Commission  or  any  State  bank  examiner  may  address  com¬ 
munications  to  any  State  bank  or  officer  thereof  relating  to  any  ex¬ 
amination  or  investigation  made  of  such  bank,  or  containing  sug¬ 
gestions  or  recommendations  as  to  its  conduct,  and  when  the  writer 
of  such  communications  requires  it,  such  communications  must  be 
submitted  to  the  executive  committee  or  board  of  directors  of  such 
bank  and  duly  noted  in  the  minutes  of  such  meeting.  The  submis¬ 
sion  of  such  communications  must  be  certified  to  the  Corporation 
Commission  by  three  members  of  such  committee  or  board.2 

t 

Manner  of  keeping  accounts.  The  manner  of  keeping  books, 
accounts  and  records  of  State  banks,  such  as  will  tend  to  produce 
uniformity  in  the  books,  accounts  and  records  of  banks  of  the  same 
class,  may  be  prescribed  by  the  Corporation  Commission.3 

Examinations.  Every  State  bank  is  required  to  be  examined  as 
often  as  the  Commission  may  deem  it  necessary,  at  least  once  a 
year,  by  a  duly  appointed  State  bank  examiner.4  Eor  the  purpose 
of  making  such  examination  the  officers  of  a  bank  are  required  to 
submit  and  surrender  its  books,  assets,  papers  and  concerns  to  the 
examiner,  who  may  retain  their  possession  for  such  length  of  time 
as  may  be  necessary.  The  examiner  may  summon  any  person  to 
appear  before  him  and  testify,  and  may  administer  an  oath  thereto. 
If  any  officer  of  a  bank  refuse  to  surrender  the  books,  assets,  papers, 
and  concerns  aforesaid,  or  shall  refuse  to  be  examined  under  oath 
touching  the  affairs  of  such  bank,  the  examiner  may  take  possession 
of  the  property  and  business  of  the  bank  and  liquidate  its  affairs.5 

Examiners  may  make  arrest.  When  it  shall  appear  to  any  ex¬ 
aminer,  by  examination  or  otherwise,  that  any  officer,  agent,  em¬ 
ployee,  director,  stockholder,  or  owner  of  any  State  bank  has  been 
guilty  of  a  violation  of  the  criminal  laws  of  this  State  relating  to 
banks,  it  is  his  duty  to  hold  and  detain  such  person  or  persons  until 
a  warrant  can  be  procured  for  his  arrest ;  and  for  such  purposes  such 
examiner  has  all  the  powers  of  peace  officers  of  such  county,  and 
may  make  arrest  without  warrant  for  past  offenses.  Upon  report  of 
his  action  to  the  Corporation  Commission,  it  may  direct  the  release 

11921,  chap.  4,  secs.  64-67;  1923,  chap.  31921,  chap.  4,  sec.  70.' 

148,  sec.  1;  1923,  chap.  211,  sec.  1.  41921,  chap.  4.  sec.  72. 

21921,  chap.  4,  sec.  69.  51921,  chap.  4,  secs.  73,  75. 


Control  and  Regulation 


255 


of  the  person  or  persons  so  held,  or,  if  in  its  judgment  such  person 
or  persons  should  he  prosecuted,  the  Commission  must  cause  the 
solicitor  of  the  judicial  district  in  which  such  detention  is  had  to 
be  promptly  notified.1 

Removal  of  officers  and  employees.  The  Corporation  Com¬ 
mission  may  require  the  immediate  removal  from  office  of  any  officer, 
director,  or  employee  of  any  State  bank  who  shall  he  found  to  he 
dishonest,  incompetent,  or  reckless  in  the  management  of  the  affairs 
of  the  bank,  or  who  persistently  violates  the  laws  of  this  State  or 
the  lawful  orders,  instructions,  and  regulations  issued  by  the  Cor¬ 
poration  Commission.2 

Limitation  on  investments.  All  investments  by  State  banks  must 
be  made  under  such  rules  and  regulations  as  the  board  of  direc¬ 
tors  may  prescribe.  A  State  bank  can  invest  only  in  such  real  estate 
as  is  necessary  for  the  convenient  transaction  of  its  business,  includ¬ 
ing  furniture  and  fixtures,  with  its  banking  offices  and  other  apart¬ 
ments  to  rent  as  a  source  of  income,  which  investment  must  not  exceed 
fifty  per  cent  of  its  paid-in  capital  stock  and  permanent  surplus ; 
also  in  such  as  is  mortgaged  to  it  in  good  faith  by  way  of  security 
for  loans  made  or  moneys  due  to  such  bank ;  also  in  such  as  has  been 
purchased  at  sales  upon  foreclosures  of  mortgages  and  deeds  of  trust 
held  or  owned  by  it  or  on  judgments  or  decrees  obtained  and  rendered 
for  debts  due  to  it,  or  in  settlements  affecting  security  of  such  debts. 
All  real  estate  purchased  at  foreclosure  or  execution  sales  must  be 
sold  by  the  bank  within  one  year  thereafter,  unless,  upon  applica¬ 
tion  of  the  board  of  directors,  the  Corporation  Commission  extends 
the  time  within  which  such  sale  shall  be  made.3 

The  investment  in  any  bonds  or  other  interest-bearing  securities 
of  any  one  firm,  individual  or  corporation,  unless  it  be  the  interest- 
bearing  obligations  of  the  United  States,  State  of  ATorth  Carolina, 
city,  town,  township,  county,  school  district,  or  other  political  sub¬ 
division  of  the  State  of  ATorth  Carolina,  by  any  State  bank  must  at 
no  time  be  more  than  twenty-five  per  cent  of  the  capital  and  perma¬ 
nent  surplus  of  any  bank  having  a  paid-in  capital  of  two  hundred 
and  fifty  thousand  dollars  or  less ;  nor  more  than  twenty  per  cent 
of  the  capital  and  permanent  surplus  of  any  bank  having  a  paid-in 
capital  of  more  than  two  hundred  and  fifty  thousand  dollars  but 
not  more  than  five  hundred  thousand  dollars ;  nor  more  than  fifteen 
per  cent  of  the  capital  and  permanent  surplus  of  any  bank  having 

31921,  chap.  4,  secs.  26,  49;  1923,  chap. 
148,  sec.  5. 


11921,  chap.  4,  sec.  76. 
21921,  chap.  4,  sec.  74. 


25G 


Banks  and  Banking 


a  paid-in  capital  of  more  than  five  hundred  thousand  dollars  hut  not 
more  than  seven  hundred  and  fifty  thousand  dollars ;  nor  more  than 
ten  per  cent  of  the  capital  and  permanent  surplus  of  any  bank  having 
a  paid-in  capital  of  more  than  seven  hundred  and  fifty  thousand 
dollars.  But  if  a  corporation  owns  the  land,  building  or  buildings 
occupied  by  such  bank  as  its  banking  home,  it  may  invest  in  its  stocks 
and  bonds  to  the  extent  of  fifty  per  cent  of  its  capital  and  permanent 
surplus.1 

No  State  bank  is  allowed  to  invest  in  the  capital  stock  of  any 
other  State  or  National  bank.  But  it  can  invest  in  the  capital  stock 
of  banks  organized  under  that  act  of  Congress  commonly  known  as 
the  “Edge  Act,”  or  central  reserve  banks  having  a  capital  stock  of 
more  than  one  million  dollars,  upon  such  terms  as  may  be  agreed 
upon.  To  constitute  a  central  reserve  bank  as  contemplated  by  law, 
at  least  fifty  per  cent  of  the  capital  stock  of  such  bank  must  be  owned 
by  other  banks.  The  investment  of  any  bank  in  the  capital  stock  of 
such  central  reserve  bank  or  bank  organized  under  that  act  of  Con¬ 
gress  commonly  known  as  the  “Edge  Act”  must  at  no  time  exceed 
ten  per  cent  of  the  paid-in  capital  and  permanent  surplus  of  the  bank 
making  same. 

No  State  bank  is  allowed  to  invest  more  than  fifty  per  cent  of  its 
permanent  surplus  in  the  stocks  of  other  corporations,  firms,  partner¬ 
ships,  or  companies,  unless  such  stock  is  purchased  to  protect  the 
bank  from  loss.  Any  stocks  owned  or  acquired  in  excess  of  the  limi¬ 
tations  imposed  must  be  disposed  of  at  public  or  private  sale  within 
six  months  after  the  date  of  acquiring  same,  and,  if  not  so  disposed 
of,  they  must  be  charged  to  profit  and  loss  account  and  no  longer 
carried  on  the  books  as  an  asset.  The  Corporation  Commission  can 
extend  the  time  of  sale  and  the  charging  off  the  books  of  the  bank 
if,  in  its  judgment,  it  is  for  the  best  interest  of  the  bank.2 

The  board  of  directors  may,  by  resolution  duly  passed  at  a  meet¬ 
ing  of  the  board,  request  the  Corporation  Commission  to  temporarily 
suspend  the  limitation  on  investments  as  same  may  apply  to  any 
particular  investment  which  said  bank  desires  to  make  in  excess  of 
the  limitations  as  above.  Upon  receipt  of  a  duly  certified  copy  of 
such  resolution,  the  Corporation  Commission  may,  in  its  discretion, 
suspend  the  limitation  as  to  such  investment.3 

Limitation  on  loans.  The  total  direct  and  indirect  liabilities  of 
any  person,  firm  or  corporation,  other  than  municipal  corporations, 


i1921,  chap.  4,  sec.  27. 

21921,  chap.  4,  sec.  28. 


31921,  chap.  4,  sec.  30. 


Control  and  Regulation 


257 


a  firm  the  liabilities  of  the  several  members  thereof,  shall  at  no  time 
exceed  twenty-five  per  cent  of  the  capital  stock  and  permanent  sur¬ 
plus  of  any  bank  having  a  paid-in  capital  of  two  hundred  and  fifty 
thousand  dollars  or  less ;  not  more  than  twenty  per  cent  of  the  capital 
and  permanent  surplus  of  any  bank  having  a  paid-in  capital  of  more 
than  two  hundred  and  fifty  thousand  dollars  but  not  more  than  five 
hundred  thousand  dollars ;  not  more  than  fifteen  per  cent  of  the  capi¬ 
tal  and  permanent  surplus  of  any  hank  having  a  paid-in  capital  of 
more  than  five  hundred  thousand  dollars  but  not  more  than  seven 
hundred  and  fifty  thousand  dollars ;  and  not  more  than  ten  per  cent 
of  the  capital  and  permanent  surplus  of  any  bank  having  a  paid-in 
capital  of  more  than  seven  hundred  and  fifty  thousand  dollars.  The 
discount  of  bills  of  exchange  drawn  in  good  faith  against  actually 
existing  values,  the  discount  of  trade  acceptances  or  other  commer¬ 
cial  or  business  paper  actually  owned  by  the  person,  firm,  or  cor¬ 
poration  negotiating  the  same,  and  the  purchase  of  any  notes  secured 
by  not  less  than  a  like  face  amount  of  bonds  of  the  United  States  or 
State  of  North  Carolina,  or  certificates  of  indebtedness  of  the  United 
States,  are  not  to  be  considered  as  money  borrowed  within  the  mean¬ 
ing  of  the  above.1  The  words  “commercial  paper,”  also  used  above, 
is  defined  to  mean  a  promissory  note.  The  words  “trade  accept¬ 
ances,”  used  above,  mean  drafts  or  bills  of  exchange  issued  or  drawn 
for  agricultural,  industrial  or  commercial  purposes,  or  the  proceeds 
of  which  have  been  used  or  are  to  be  used  for  such  purposes,  but  not 
notes,  drafts,  or  bills  of  exchange  covering  merely  investments,  or 


bonds,  or  other  investment  securities,  except  bonds  and  notes  of  the 
Government  of  the  United  States  and  State  of  North  Carolina.  Such 
notes,  drafts,  and  bills  of  exchange  must  have  a  maturity  at  the 
time  of  discount  of  not  more  than  ninety  days,  except  when  drawn 
or  issued  for  agricultural  purposes,  or  based  on  livestock,  when  such 
maturities  shall  not  exceed  nine  months  from  the  date  thereof,  and 
must  be  actually  owned  by  the  person,  firm  or  corporation  negoti¬ 
ating  the  same." 

The  board  of  directors  may,  by  resolution  duly  passed  at  a  meet¬ 
ing  of  the  board,  request  the  Corporation  Commission  to  temporarily 
suspend  the  limitation  on  loans  as  same  may  apply  to  any  particular 
loan  which  said  bank  desires  to  make  in  excess  of  the  limitations  as 


sec.  6. 


11921,  chap.  4,  sec.  29;  1923,  chap.  148, 


21921,  chap.  4,  sec.  36. 
31923,  chap.  148,  sec.  6. 


258 


Banks  and  Banking 


above.  Upon  receipt  of  a  duly  certified  copy  of  such  resolution,  the 
Corporation  Commission  may,  in  its  discretion,  suspend  the  limita¬ 
tion  as  to  such  loan.1 

Reserve;  depository  for,  designated.  Every  State  bank  must  at 
all  times  have  on  hand  or  on  deposit,  with  approved  reserve  deposi¬ 
tories,  instantly  available,  funds  in  an  amount  equal  to  at  least  fifteen 
per  cent  of  the  aggregate  amount  of  its  demand  deposits,  and  five 
per  cent  of  the  aggregate  amount  of  its  time  deposits.  But  no  re¬ 
serve  is  required  on  deposits  secured  by  a  deposit  of  United  States 
bonds  or  the  bonds  of  the  State  of  North  Carolina.  Any  bank  that 
is  now  or  may  hereafter  become  a  member  of  the  Federal  Reserve 
Bank  must  maintain  the  same  reserve  with  respect  to  deposits  as  is 
required  of  other  members  of  such  Federal  Reserve  Bank.  The 
reserve  shall  consist  of  cash  on  hand  and  balances  payable  on  de¬ 
mand,  due  from  other  approved  solvent  banks,  which  have  been 
designated  depositories.2  It  is  the  duty  of  the  board  of  directors 
to  designate  depositories  or  reserve  banks  in  which  a  part  of  such 
bank’s  reserve  shall  be  deposited  subject  to  payment  on  demand.  A 
copy  of  the  resolution  designating  such  depository  must  be  certified 
to  the  Corporation  Commission,  and  the  depository  so  designated 
is  subject  to  the  approval  of  the  Corporation  Commission,  which 
approval  may  be  withdrawn  at  any  time  for  cause  which  said  Com¬ 
mission  may  deem  adequate.3 


*1921,  chap.  4,  sec.  30. 
21921,  chap.  4.  sec.  31,  32. 


3 1 9 2 1 ,  chap.  4,  sec.  55 


Chapter  II 

BANKING  CORPORATIONS  AND  ASSOCIATIONS 


Incorporation,  organization,  and  incidents  of  existence.  Any 

number  of  persons,  not  less  than  five,  who  may  be  desirous  of  form¬ 
ing  a  company  under  the  banking  laws  of  this  State  and  engaging 
in  the  business  of  establishing,  maintaining,  and  operating  banks  of 
discount  arid  deposit  to  be  known  as  commercial  banks,  or  engaging 
in  the  business  of  establishing,  maintaining,  and  operating  offices  of 
loan  and  deposit  to  be  known  as  savings  banks,  or  of  establishing, 
maintaining,  and  operating  banks  having  departments  for  both  classes 
of  business,  or  operating  banks  engaged  in  doing  a  trust,  fiduciary, 
and  surety  business,  shall  be  incorporated  by  filing  a  certificate  of 
incorporation,  under  their  hands  and  seals,  in  the  office  of  the  Secre¬ 
tary  of  State,  whereupon  he  must  forthwith  transmit  to  the  Corpora¬ 
tion  Commission  a  copy  thereof,  which  Commission  must  thereupon 
examine  into  all  the  facts  connected  with  the  matter  as  set  forth  in 
the  foregoing  chapter,  paragraph  headed  “Authority  for  issuing  char¬ 
ters,”  and  refuse  or  issue  its  certificate  to  the  Secretary  of  State  that 
said  corporation  is  entitled  to  commence  the  business  of  banking. 
If  it  grants  such  certificate,  then,  upon  the  Secretary  of  State  trans¬ 
mitting  a  copy  of  the  certificate  of  the  Corporation  Commission,  and 
the  recording  of  same  in  the  office  of  the  clerk  of  the  Superior  Court 
of  the  county  wherein  is  to  be  located  the  principal  office  of  the  cor¬ 
poration,  and  upon  the  filing  of  a  copy  of  said  certificate  in  the  office 
of  the  Corporation  Commission,  the  said  persons  become  a  body  poli¬ 
tic  and  corporate  under  the  name  stated  in  the  certificate.  The 
charter,  however,  is  void  unless  the  organization  is  completed  and 
bank  opened  for  business  in  six  months  from  date  of  filing  its  cer¬ 
tificate  of  incorporation  with  the  Secretary  of  State,  unless  the  Cor¬ 
poration  Commission  for  cause  extends  the  time  for  such  organiza¬ 
tion  and  beginning  of  business.1 

Powers  and  duties  ;  general  corporation  law  applicable. 
In  addition  to  the  powers  conferred  by  law  upon  private  corpora¬ 
tions,  a  State  bank  is  given  the  power  to  exercise  by  its  board  of 
directors,  or  duly  authorized  officers  and  agents,  subject  to  law,  all 
such  powers  as  shall  be  necessary  to  carry  on  the  business  of  banking, 
by  discounting  and  negotiating  promissory  notes,  drafts,  bills  of 
exchange,  and  other  evidences  of  indebtedness,  by  receiving  deposits, 

11921,  chap.  4,  secs.  2,  4,  5  ;  1921  (extra 

session),  chap.  56,  sec.  1. 


260 


Banks  and  Banking 


by  buying  and  selling  exchange,  coin,  and  bullion,  by  loaning  money 
on  personal  security  or  real  and  personal  property,  at  the  time  of 
making  loans  or  discounts,  taking  and  receiving  interest  or  discounts 
in  advance;  to  adopt  regulations  for  the  government  of  the  corpora¬ 
tion  not  inconsistent  with  the  Constitution  and  laws  of  this  State; 
to  purchase,  hold,  and  convey  real  estate  for  the  purposes  and  under 
the  limitations  set  forth  in  Chapter  I  of  this  monograph.1  The 
corporate  powers,  business,  and  property  of  State  banks  are  exer¬ 
cised,  conducted,  and  controlled  by  boards  of  directors.2 

All  provisions  of  law  relating  to  private  corporations,  and  particu¬ 
larly  those  enumerated  in  the  chapter  of  the  Consolidated  Statutes 
entitled  “Corporations,”  not  inconsistent  with  the  State  Banking 
Act  or  with  the  business  of  banking,  are  applicable  to  banks.3 

Transactions  preliminary  to  beginning  business.  ~No  State 
banking  corporation  is  allowed  to  transact  any  business  except  such 
as  is  incidental  and  necessarily  preliminary  to  its  organization  until 
it  lias  been  authorized  to  do  so  by  the  Corporation  Commission.4 

I)e  fective  organization.  The  fact  that  there  is  a  defect  in  the 
organization  of  a  bank  will  not  relieve  a  bank  president  of  his  lia¬ 
bility  cast  upon  him  by  constructive  notice  of  the  management  of  its 
affairs  by  the  cashier  and  other  subordinate  officers,  if  he  has  con¬ 
tributed  the  influence  of  his  reputation  to  give  undeserved  credit  to 
a  spurious  corporation.5 

Br  anciies.  Any  State  bank  may  establish  branches  in  the  city 

«-/  «/ 

in  which  it  is  located,  or  elsewhere,  after  having  first  obtained  the 
written  approval  of  the  Corporation  Commission,  which  approval 
may  be  given  or  withheld  by  the  Corporation  Commission,  in  its 
discretion,  and  shall  not  be  given  until  it  shall  have  ascertained  to 
its  satisfaction  that  the  public  convenience  and  advantage  will  be 
promoted  by  the  opening  of  such  branch.  Such  branch  banks  must 
be  operated  as  branches  of  and  under  the  name  of  the  parent  bank, 
and  under  the  control  and  direction  of  the  board  of  directors  and 
executive  officers  of  said  parent  bank.  The  board  of  directors  of  the 
parent  bank  must  elect  a  cashier  and  such  other  officers  as  may  be 
required  to  properly  conduct  the  business  of  such  branch,  and  a 
board  of  managers  or  loan  committee  must  be  responsible  for  the 
conduct  and  management  of  said  branch,  but  not  of  the  parent  bank 


11921,  chap.  4,  sec.  26. 

21921,  chap.  4,  sec.  48. 

31921,  chap.  4,  sec.  87. 


41921,  chap.  4,  sec.  9. 
3Hauser  v.  Tate,  85-82. 


Banking  Corporations  and  Associations 


261 


or  of  any  branch  save  that  of  which  they  are  officers,  managers,  or 
committee.  The  Corporation  Commission  is  not  allowed  to  authorize 
the  establishment  of  any  branch  the  paid-in  capital  stock  of  whose 
parent  bank  is  not  sufficient  in  an  amount  to  provide  for  the  capital 
of  at  least  fifteen  thousand  dollars  for  the  parent  bank,  and  at  least 
fifteen  thousand  dollars  for  each  branch  which  it  is  proposed  to 
establish  in  cities  or  towns  of  three  thousand  population  or  less;  nor 
less  than  thirty  thousand  dollars  in  cities  and  towns  whose  popula¬ 
tion  exceeds  three  thousand  but  does  not  exceed  ten  thousand ;  nor 
less  than  fifty  thousand  dollars  in  cities  and  towns  whose  population 
exceeds  ten  thousand  but  does  not  exceed  twenty-five  thousand;  nor 


less  than  one  hundred  thousand  dollars  in  cities  and  towns  whose 
population  exceeds  twenty-five  thousand.1  The  parent  bank  stands 
to  such  branch  bank  in  the  relation  of  principal  to  agent,  and  all 
assets  and  debts  of  the  branch  bank  are  assets  and  debts  of  the  prin¬ 
cipal  bank.2 

The  fact  that  a  bank’s  charter  says  that  its  principal  place  of  busi¬ 
ness  shall  be  at  a  certain  place  does  not  by  implication  give  it  the 
power  to  establish  branches/’’ 

The  weight  of  authority  is  that  a  bank  and  its  branches  constitute 
but  one  corporation.4 


Consolidation.  A  State  bank  may  consolidate  with  or  transfer 
its  assets  and  liabilities  to  another  bank.  Before  such  consolidation 
or  transfer  shall  become  effective,  each  bank  concerned  in  such  con¬ 
solidation  or  transfer  must  file,  or  cause  to  be  tiled,  with  the  Corpo¬ 
ration  Commission  certified  copies  of  all  proceedings  had  bv  its 
directors  and  stockholders,  which  said  stockholders’  proceedings  must 
set  forth  that  holders  of  at  least  two-thirds  of  the  stock  voted  in  the 
affirmative  on  the  proposition  of  consolidation  or  transfer.  Such 
stockholders’  proceedings  must  also  contain  a  complete  copy  of  the 
agreement  made  and  entered  into  between  said  banks  with  reference 
to  such  consolidation  or  transfer.  Upon  the  filing  of  such  stock¬ 
holders’  and  directors’  proceedings  as  aforesaid,  the  (  orporation 
Commission  must  cause  to  be  made  an  examination  of  each  bank  to 
determine  whether  the  interests  of  the  depositors,  creditors,  and  stock¬ 
holders  of  each  bank  are  protected,  and  that  such  consolidation  or 
transfer  is  made  for  legitimate  purposes,  and  its  consent  to  or  1  ejec¬ 
tion  of  such  consolidation  or  transfer  must  be  based  upon  such 
examination.  Uo  such  consolidation  or  transfer  can  be  made  vitli- 


11921,  chap.  4,  sec.  43;  1921 
sion),  chap.  56,  sec.  2. 

2Worth  v.  Bank,  122-397,  29 


(extra  ses- 
S.  E.  775. 


3Morehead  Banking  Co.  v.  Tate  122-313, 
30  S.  E.  341. 

1  Worth  v.  Bank,  122-397,  29  S.  E.  775. 


262 


Banks  and  Banking 


out  the  consent  of  the  Corporation  Commission.  The  expense  of 
such  examinations  must  be  paid  by  such  banks.  Notice  of  such  con¬ 
solidation  or  transfer  must  be  published  for  four  weeks  before  or 
after  the  same  is  to  become  effective,  at  the  discretion  of  the  Corpo¬ 
ration  Commission,  in  a  newspaper  published  in  a  city,  town,  or 
county  in  which  each  of  said  banks  is  located,  and  a  certified  copy 
thereof  must  be  filed  with  the  Corporation  Commission.  In  case  of 
either  transfer  or  consolidation  the  rights  of  creditors  must  be  pre¬ 
served  unimpaired,  and  the  respective  companies  deemed  to  be  in 
existence  to  preserve  such  rights  for  a  period  of  three  years.1 

In  case  of  consolidation,  when  the  agreement  of  consolidation  is 
made,  and  a  duly  certified  copy  thereof  is  filed  with  the  Secretary  of 
State,  together  with  a  certified  copy  of  the  approval  of  the  Corpora¬ 
tion  Commission  to  such  consolidation,  the  banks,  parties  thereto, 
will  be  held  to  be  one  company,  possessed  of  the  rights,  privileges, 
powers,  and  franchises  of  the  several  companies,  but  subject  to  all 
the  provisions  of  law  under  which  it  is  created.  The  directors  and 
other  officers  named  in  the  agreement  of  consolidation  are  required 
to  serve  until  the  first  annual  meeting  for  election  of  officers  and 
directors,  the  date  for  which  must  be  named  in  the  agreement.  On 
filing  such  agreement,  all  and  singular,  the  property  and  rights  of 
every  kind  of  the  several  companies  are  thereby  transferred  and 
vested  in  such  new  company,  and  are  as  fully  its  property  as  they 
were  of  the  companies  parties  to  the  agreement.2 

Reorganization.  Whenever  any  National  or  State  bank  is 
authorized  to  dissolve,  and  shall  have  taken  the  necessary  steps  to 
effect  dissolution,  it  shall  be  lawful  for  a  majority  of  the  directors 
of  such  bank,  upon  authority  in  writing  of  the  owners  of  two-thirds 
of  its  capital  stock,  with  the  approval  of  the  Corporation  Commis¬ 
sion,  to  execute  articles  of  incorporation  as  provided  by  law,  which 
articles,  in  addition  to  the  requirements  of  law,  must  further  set 
forth  the  authority  derived  from  the  stockholders  of  such  National 
bank  or  State  bank,  and  upon  filing  the  same  as  provided  for  the 
organization  of  banks,  the  same  becomes  a  bank  under  the  laws  of 
this  State,  and  thereupon  all  assets,  real  and  personal,  of  the  dis¬ 
solved  National  or  State  bank  by  operation  of  law  is  vested  in  and 
becomes  the  property  of  such  State  bank,  subject  to  all  liabilities  of 
such  National  or  State  bank  not  liquidated  under  the  laws  of  the 
United  States  or  this  State  before  such  reorganization.3 


11921,  chap.  4,  sec.  12. 

21921,  chap.  4,  sec.  13. 


31921,  chap.  4,  sec.  14. 


Banking  Corporations  and  Associations 


263 


Authority  to  join  Federal  Reserve  System.  Any  State  bank 
has  the  power  to  subscribe  to  the  capital  stock  and  become  a  member 
of  a  Federal  Reserve  Bank,  and  upon  becoming  a  member  thereof  it 
’  is  vested  with  all  powers  conferred  upon  member  banks  of  the  Fed¬ 
eral  Reserve  System  by  terms  of  the  Federal  Reserve  Act  as  fully 
and  completely  as  if  such  powers  were  specifically  enumerated  and 
described  therein,  and  such  powers  must  be  exercised  subject  to  all 
restrictions  and  limitations  imposed  by  the  Federal  Reserve  Act,  or 
by  regulations  of  the  Federal  Reserve  Board  made  pursuant  thereto. 
The  right,  however,  is  expressly  reserved  to  revoke  or  to  amend  the 
powers  herein  conferred.  A  compliance  on  the  part  of  any  such 
bank  with  the  reserve  requirements  of  the  Federal  Reserve  Act  is 
held  to  be  a  full  compliance  with  the  provisions  of  the  laws  of  this 
State  which  require  banks  to  maintain  cash  balances  in  their  vaults 
or  with  other  banks,  and  no  such  bank  is  required  to  carry  or  main¬ 
tain  reserve  other  than  such  as  is  required  under  the  terms  of  the 
Federal  Reserve  Act.  Any  such  bank  continues  to  be  subject  to  the 
supervision  and  examination  required  by  the  laws  of  this  State, 
except  that  the  Federal  Reserve  Board  has  the  right,  if  it  deems 
necessary,  to  make  examinations ;  and  the  authorities  of  this  State 
having  supervision  over  such  banks  may  disclose  to  the  Federal 
Reserve  Board,  or  to  the  examiners  duly  appointed  by  it,  all  informa¬ 
tion  in  reference  to  the  affairs  of  any  bank  which  has  become,  or 
desires  to  become,  a  member  of  a  Federal  Reserve  Bank.1 

Capital  stock;  increase  and  decrease;  penalty  for  falsely  adver¬ 
tising.  No  State  bank  can  commence  business  with  less  capital 
stock  than  fifteen  thousand  dollars  in  cities  or  towns  of  three  thou¬ 
sand  population  or  less;  nor  less  than  thirty  thousand  dollars  in 
cities  and  towns  whose  population  exceeds  three  thousand  but  does 
not  exceed  ten  thousand ;  nor  less  than  fifty  thousand  dollars  in  cities 
and  towns  whose  population  exceeds  ten  thousand  but  does  not 
exceed  twenty-five  thousand ;  nor  less  than  one  hundred  thousand 
dollars  in  cities  and  towns  having  a  population  of  more  than  twenty- 
five  thousand;  the  population  to  be  ascertained  by  the  last  preceding 
National  census.  Such  stock  must  be  divided  into  shares  of  fifty  or 
one  hundred  dollars  eachu 

Fifty  per  cent  of  the  capital  stock  of  every  State  bank  must  be 
paid  in  cash  before  it  will  be  authorized  to  commence  business,  and 
the  remainder  of  the  capital  stock  of  such  bank  must  be  paid  in 
monthly  installments  of  at  least  ten  per  cent  in  cash  of  the  whole 

21921,  chap.  4,  sec.  2. 


11921,  chap.  4.  sec.  42. 


Banks  and  Banking 


264 


capital,  payable  at  the  end  of  each  succeeding  month  from  the  time 
it  is  authorized  by  the  Corporation  Commission  to  commence  busi¬ 
ness,  and  the  payment  of  each  installment  must  be  certified  to  the 
Corporation  Commission,  under  oath,  by  the  president  or  the  cashier 
of  the  bank.  The  stock  sold  by  any  bank  in  process  of  organization, 
or  for  an  increase  of  the  capital  stock,  must  be  accounted  for  to  the 
bank  in  the  full  amount  paid  for  the  same.  T[o  commission  or  fee 
is  allowed  to  be  paid  to  any  person,  association,  or  corporation  for 
selling  such  stock.1  The  Corporation  Commission  must  refuse 
authority  to  commence  business  to  any  bank  if  commissions  or  fees 
have  been  paid  or  have  been  contracted  to  be  paid  by  it,  or  by  any 
one  in  its  behalf,  to  any  person,  association,  or  corporation  for  secur¬ 
ing  subscriptions  for  or  selling  stock  in  such  bank. 

Any  State  bank  may  increase  or  decrease  its  capital  stock  in  the 
manner  provided  for  other  corporations.  But  no  bank  is  allowed  to 
reduce  its  capital  stock  to  an  amount  less  than  the  minimum  required 
bv  law.  Such  reduction  is  not  valid  nor  will  it  warrant  the  cancella¬ 


tion  of  stock  certificates  until  it  has  been  approved  by  the  Corpora¬ 
tion  Commission.  Such  approval  must  not  be  given  except  upon  a 
finding  by  the  Corporation  Commission  that  the  security  of  existing 
creditors  of  the  corporation  will  not  be  impaired.2 

Should  any  bank  advertise  in  newspaper,  letterhead  or  any  other 
way  a  larger  capital  stock  than  has  been  actually  paid  in  in  cash, 
such  bank  shall  be  subject  to  a  penalty  of  five  hundred  dollars  for 
each  and  every  offense.3 


Impairment  of  capital  stock  ;  of  State  banks  made  good. 
As  to  the  impairment  of  the  capital  stock  of  National  banks,  it  is 
held  that  the  decision  of  the  Comptroller  of  the  Currency  is  con¬ 
clusive  and  final  on  the  stockholders  and  the  courts.4  As  to  State 
banks,  the  Corporation  ( Commission  must  notify  every  bank  whose 
capital  shall  have  become  impaired  from  losses  or  any  other  cause 
and  the  surplus  and  undivided  profits  of  such  bank  are  insuf¬ 
ficient  to  make  good  such  impairment,  to  make  the  impairment  good 
within  sixty  days  of  such  notice  by  an  assessment  upon  the  stock¬ 
holders  thereof,  and  it  is  the  duty  of  the  officers  and  directors  of  the 
bank  receiving  such  notice  to  immediately  call  a  special  meeting  of 
the  stockholders  for  the  purpose  of  making  an  assessment  upon  its 
stockholders  sufficient  to  cover  the  impairment  of  the  capital,  payable 

4Gurley  v.  Woodbury,  177-70,  97  S.  E. 
754. 


11921,  cbap.  4,  sec.  6. 

21921,  chap.  4,  secs.  10,  11. 

31921,  chap.  4,  sec.  86. 


Banking  Corporations  and  Associations  265 

in  cash,  at  which  meeting  such  assessment  must  be  made.  Such 
bank  may  reduce  its  capital  to  the  extent  of  the  impairment,  as  pro¬ 
vided  by  law. 

If  any  stockholder  of  such  State  bank  neglects  or  refuses  to  pay 
such  assessment  as  provided,  it  is  the  duty  of  the  board  of  directors 
to  cause  a  sufficient  amount  of  the  capital  stock  of  such  stockholder 
or  stockholders  to  be  sold  at  public  auction,  upon  thirty  days  notice 
given  by  posting  such  notice  of  sale  in  the  office  of  the  bank  and  pub¬ 
lishing  such  notice  in  a  newspaper  in  the  place  where  the  bank  is 
located,  and,  if  none,  then  in  a  newspaper  circulating  in  the  county 
in  which  the  bank  is  located,  to  make  good  the  deficiency,  and  the 
balance,  if  any,  shall  be  returned  to  the  delinquent  shareholder  or 
shareholders.  If  any  such  bank  shall  fail  to  cause  to  be  paid  in  such 
deficiency  in  its  capital  stock  for  three  months  after  receiving  such 
notice  from  the  Corporation  Commission,  the  Corporation  Commis¬ 
sion  may  forthwith  take  possession  of  the  property  and  business  of 
such  bank  until  its  affairs  be  finally  liquidated  as  provided  by  law. 
A  sale  of  stock  as  provided  effects  an  absolute  cancellation  of  the 
outstanding  certificate,  or  certificates,  evidencing  the  stock  so  sold, 
and  makes  the  certificate  null  and  void,  and  a  new  certificate  must 
be  issued  by  the  bank  to  the  purchaser  of  such  stock.1 

Stockholders’  book.  The  directors  must  provide  a  hook  in  which 
must  be  kept  the  name  and  resident  address  of  each  stockholder,  the 
number  of  shares  held  by  each,  the  time  when  such  person  became  a 
stockholder,  together  with  all  transfers  of  stock,  stating  the  time 
when  made,  the  number  of  shares  and  by  whom  transferred,  which 
book  must  be  subject  to  the  inspection  of  the  directors,  officers,  and 
stockholders  of  the  bank  at  all  times  during  the  usual  hours  for  the 
transaction  of  business.2 

Undivided  profits ;  surplus ;  dividends.  The  term  “undivided 
profits”  means  the  credit  balance  of  the  profit  and  loss  account  of 
any  bank.  The  term  “net  earnings”  means  the  excess  of  the  gross 
earnings  of  any  bank  over  expenses  and  losses  chargeable  against 
such  earnings  during  any  dividend  period.  I  he  term  surplus 
means  a  fund  created  pursuant  to  the  provisions  of  the  State  Bank¬ 
ing  Act  by  a  bank  from  its  net  earnings  or  undivided  piofits,  which, 
to  the  amount  specified  and  any  additions  thereto  set  apait  and 
designated  as  such,  is  not  available  for  the  payment  of  dividends, 
and  cannot  be  used  for  the  payment  of  expenses  01  losses  so  long  as 


31921  (extra  session),  chap.  56,  sec.  3. 


21921,  chap.  4,  sec.  56. 


Banks  and  Banking 


200 

such  bank  lias  undivided  profits.1  The  primary  purpose  of  a  surplus 
is  the  accumulation  of  a  sum  against  which  bad  debts  may  be  charged, 
so  that  at  all  times  the  capital  may  be  kept  unimpaired.2 

The  board  of  directors  of  any  State  bank  may  declare  a  dividend 

«  e/ 

of  so  much  of  its  undivided  profits  as  they  may  deem  expedient,  sub¬ 
ject  to  the  requirements  of  law.  Before  such  dividend  is  declared, 
not  less  than  twenty-five  per  cent  of  the  undivided  profits  of  any 
bank,  having  a  capital  stock  of  fifteen  thousand  dollars  or  more,  must 
be  carried  to  the  surplus  of  such  bank  until  its  surplus  amounts  to 
fifty  per  cent  of  its  paid-in  capital  stock ;  and  not  less  than  fifty  per 
cent  of  the  undivided  profits  of  any  bank  having  a  capital  stock  of 
less  than  fifteen  thousand  dollars  must  be  carried  to  the  surplus  of 
such  bank  until  its  surplus  amounts  to  one  hundred  per  cent  of  its 
paid-in  capital  stock.  In  order  to  ascertain  the  undivided  profits 
from  which  such  dividend  may  be  made,  there  shall  be  charged  and 
deducted  from  the  actual  profits : 

( a )  All  ordinary  and  extraordinary  expenses,  paid  or  incurred, 
in  managing  the  affairs  and  transacting  the  business  of  the  bank ; 

( b )  Interest  paid  or  then  due  on  debts  which  it  owes; 

(c)  All  taxes  due; 

(cl)  All  overdrafts  which  have  been  standing  on  the  books  of  the 
bank  for  a  period  of  sixty  days  or  longer ; 

( e )  All  losses  sustained  by  the  bank.  In  computing  the  losses, 
debts  owing  to  it  which  have  become  due  and  which  are  not  in  process 
of  collection,  and  on  which  interest  for  one  year  or  more  is  due  and 
unpaid,  unless  same  are  well  secured,  and  debts  upon  which  final 
judgment  has  been  recovered,  but  has  been  for  more  than  one  year 
unsatisfied,  and  on  which  also  for  a  period  of  one  year  no  interest 
has  been  paid,  unless  same  are  well  secured,  shall  be  included.3 

1  he  surplus  of  any  State  bank  must  not  be  used  for  the  purpose 
of  paying  expenses  or  losses  until  the  credit  to  undivided  profits  has 
been  exhausted.  But  any  portion  of  such  surplus  may  be  converted 
into  capital  stock  and  distributed  as  a  stock  dividend,  provided  that 
such  surplus  shall  not  thereby  be  reduced  below  fifty  per  cent  of  the 
paid-in  capital  of  such  bank  having  a  paid-in  capital  of  fifteen  thou¬ 
sand  dollars  or  more.  When  the  surplus  of  any  bank  having  a  capital 
stock  of  less  than  fifteen  thousand  dollars  shall  reach  an  amount 
equal  to  one  hundred  per  cent  of  its  paid-in  capital,  the  board  of 
directors  of  such  bank  must  declare  a  dividend  of  fifty  per  cent  of 

11921,  chap.  4,  sec.  1. 

2Pullen  v.  Corp.  Commission,  152-548,  68 

S.  E.  155. 


31921,  chap.  4,  sec.  58. 


Banking  Corporations  and  Associations 


267 


said  surplus  and  distribute  the  same  as  a  stock  dividend.  Where  the 
distribution  of  such  a  stock  dividend  would  increase  the  capital  stock 
of  any  hank  to  an  amount  greater  than  fifteen  thousand  dollars,  the 
board  of  directors  of  such  bank  may,  in  its  discretion,  declare  a  stock 
dividend  of  only  so  much  of  said  surplus  as  will  be  necessary  to 
increase  the  stock  of  the  said  bank  to  fifteen  thousand  dollars.1 


Lien  of  bank  on  stock  or  dividends.  Where  a  bank  charter  pro¬ 
vides  that  the  bank  shall  have  a  lien  on  the  shares  of  its  stockholders 
to  secure  any  indebtedness  by  them  to  the  bank,  the  lien  only  extends 
to  the  indebtedness  directly  incurred  to  the  bank,  not  to  indebtedness 
to  third  persons  acquired  by  it.  The  lien  is  not  extended  to  notes  of 
a  shareholder  to  a  third  person,  taken  by  the  bank  as  collateral  from 
such  person,  merely  by  the  fact  that  the  stockholder  was  then  presi¬ 
dent  of  the  bank.  The  failure  of  a  bank  having  a  provision  for  such 
a  lien  in  its  charter  to  organize  within  two  years  after  it  is  chartered, 
which  failure  the  law  provides  shall  forfeit  its  charter,  cannot  be 
urged  against  the  validity  of  a  lien  bv  the  bank  on  shares  of  a  stock- 

O  O  e/ 

holder,  but  the  objection  can  only  be  raised  by  the  State  in  a  direct 
proceeding.2 

Stock  sold  if  subscription  unpaid.  Whenever  any  stockholder 
of  a  State  bank,  or  his  assignee,  fails  to  pay  any  installment  on  the 
stock  when  the  same  is  required  by  law  to  be  paid,  the  directors  of 
the  bank  must  sell  the  stock  of  such  delinquent  stockholder  at  public 
or  private  sale,  as  they  may  deem  best,  having  first  given  the  delin¬ 
quent  stockholder  twenty  days  notice,  personally  or  by  mail,  at  his 
last  known  address.  If  no  party  can  be  found  who  will  pay  for  such 
stock  the  amount  due  thereon  to  the  bank,  the  amount  previously 
paid  is  forfeited  to  the  bank,  and  such  stock  must  be  sold,  as  the 
directors  may  order,  within  thirty  days  of  the  time  of  such  forfeit¬ 
ure,  and  if  not  sold,  it  must  be  canceled  and  deducted  from  the 
capital  stock  of  the  bank.3 

Stockholders.  Wiio  are,  and  record  of.  The  term  ‘‘stock¬ 
holders,”  when  used  in  the  State  Banking  Act,  applies  not  only  to 
such  persons  as  appear  by  the  books  of  the  corporation  to  be  stock¬ 
holders,  but  also  to  every  owner  of  stock,  legal  or  equitable,  although 
the  same  may  be  on  such  books  in  the  name  of  another  poison,  but 
does  not  apply  to  a  person  who  may  hold  the  stock  as  collateial  foi 
the  payment  of  a  debt.4  Every  State  bank  must  at  all  times  keep  a 


11921,  chap.  4, 
2Boyd  v.  Redd, 


sec.  59. 

120-335,  27  S.  E.  35. 


31921,  chap.  4,  sec.  25. 
41921,  chap.  4,  sec.  21. 


2GS 


Banks  and  Banking 


correct  record  of  the  names  of  all  its  stockholders,  and  once  in  each 
year,  or  whenever  called  upon,  file  in  the  office  of  the  Corporation 
Commission  a  correct  list  of  all  its  stockholders,  the  resident  address 
of  each,  and  the  number  of  shares  held  by  each.1 

Rights  of  stockholders.  A  majority  of  stockholders  of  a 
National  bank,  who  enter  into  an  illegal  voting  trust  agreement, 
may  not  divert  the  funds  of  the  bank  for  the  payment  of  the  expenses 
of  preparing  the  agreement  and  of  defending  an  action  involving  its 
validity.2 

As  a  creditor,  a  stockholder  is  entitled  only  to  a  dividend  in  pro¬ 
portion  to  other  creditors.  His  liability  as  a  contributor  for  the 
benefit  of  creditors  must  be  distinguished  from  his  character  as  a 
simple  contract  debtor  to  the  bank  upon  ordinary  business  trans¬ 
actions.  The  money  arising  from  unpaid  shares  is  a  trust  fund  for 
all  the  creditors  and  cannot  be  affected  by  any  individual  trans¬ 
actions  of  the  stockholder  to  the  prejudice  of  the  other  stockholders.3 

Liability  for  debts  and  acts  of  bank  ;  transferrer  of  stock. 
The  stockholders  of  every  bank,  notwithstanding  exemptions  con¬ 
tained  in  the  charter,  are  individually  responsible,  equally  and 
ratably,  and  not  one  for  another,  for  all  contracts,  debts,  and  engage¬ 
ments  of  such  corporation,  to  the  extent  of  the  amount  of  their  stocks 
therein  at  par  value  thereof,  in  addition  to  the  amount  invested  in 
such  shares.  The  term  “stockholders,”  when  used  in  the  State  Bank¬ 
ing  Act,  applies  not  only  to  such  persons  as  appear  by  the  books  of 
the  corporation  to  be  stockholders,  but  also  to  every  owner  of  stock, 
legal  or  equitable,  although  the  same  may  be  on  such  books  in  the 
name  of  another  person ;  but  shall  not  apply  to  a  person  who  may 
hold  the  stock  as  collateral  for  the  payment  of  a  debt.4 

This  double  liability  of  stockholders  is  in  derogation  of  the  com¬ 
mon  law,  and  the  statute  imposing  it  must  be  strictly  construed.5 
It  is  imposed  for  the  benefit  of  creditors  and  attaches  by  virtue  of 
the  statute  to  the  owners  of  the  stock,  and  the  receiver  of  an  insolvent 
bank  can  enforce  it  whenever  it  appears  that  the  other  assets  of  the 
bank  will  be  insufficient,  and  he  need  not  wait  until  other  assets  are 
completely  exhausted,  though  he  must  first  resort  to  the  unpaid  sub¬ 
scriptions  on  stock.  It  is  intended  as  a  trust  for  the  security  of 
creditors,  and  such  liability  cannot,  as  against  creditors  or  other 

]}921  chap.  4,  sec.  68.  “1921,  chap.  4,  secs.  21,  22. 

-Bank  v.  Holderness,  160-474,  76  S.  E.  5Smathers  v.  Bank,  135-410,  47  S  E 
„  62f.  893. 

■‘First  Nat.  Bank  v.  Riggins,  124-534  32 

S.  E.  801. 


Banking  Corporations  and  Associations  269 

stockholders,  be  released  by  the  corporation.1  Tlie  statute  runs 
against  the  right  to  enforce  tlie  double  liability  from  the  time  of  the 
suspension  of  specie  payment  by  the  bank.2 

Persons  bolding  stock  as  executors,  administrators,  guardians,  or 
trustees  are  not  personally  subject  to  any  liabilities  as  stockholders, 
but  the  estate  and  funds  in  their  bands  are  liable  in  like  manner  and 
to  the  same  extent  as  the  testator,  intestate,  ward,  or  person  inter¬ 
ested  in  such  trust  fund  would  be  if  living  and  competent  to  bold 
stock  in  his  own  name.3  If,  however,  the  fiduciary  or  trustee  at  a 
stockholders’  meeting  agrees  to  become  liable  for  a  specific  amount, 
this  is  an  individual  liability  of  the  fiduciary  or  trustee  and  not  of 
the  estate.4 

No  person  who  has,  in  good  faith  and  without  intent  to  evade  bis 
liability  as  a  stockholder,  transferred  bis  stock  in  a  State  bank  on 
the  books  of  the  corporation  to  any  person  of  full  age,  previous  to 
any  default  in  the  payment  of  any  debt  or  liability  of  the  corpora¬ 
tion,  is  subject  to  any  personal  liability  on  account  of  the  nonpay¬ 
ment  of  such  debt  or  liability  of  tlie  corporation,  but  the  transferee 
of  any  stock  so  transferred  previous  to-  any  default  is  liable  for  any 
such  debt  or  liability  of  the  corporation,  to  the  extent  of  such  stock, 
in  the  sam6  manner  as  if  he  bad  been  such  owner  at  the  time  the 
corporation  contracted  such  debt  or  liability.  Xo  transfer  of  tlie 
shares  of  stock  of  an  insolvent  State  bank,  made  within  sixty  days 
prior  to  its  suspension,  operates  to  release  or  discharge  the  assignor 
thereof,  but  is  prima  facie  evidence  that  such  stockholder  assigned 
the  same  with  knowledge  of  the  insolvency  of  such  bank  and  with  an 
intent  to  evade  the  liability  thereon.5 

Individual  liability  as  an  asset.  The  individual  liabilitv 
created  by  statute  of  the  shareholders  in  a  bank,  beyond  the  amount 
of  the  stock  for  which  they  have  subscribed,  is  an  asset  of  the  corpo¬ 
ration  available  only  to  the  creditors  and  depositors  of  the  bank ; 
and  where  the  directors  of  a  bank  have  assumed  obligation  on  cer¬ 
tain  of  its  worthless  paper  to  so  relieve  the  bank  that  it  may  con¬ 
tinue  in  business  with  permission  of  the  Corporation  Commission, 
but  upon  condition  that  the  bank’s  assets  be  found  insufficient  to  pay 
its  liabilities,  they  may  not  successfully  assert  that  the  individual 
liability  of  the  stockholders  was  included  within  the  meaning  of  the 
word  “assets”  so  used  by  them.  A  receiver  is  not  required  to  collect 

1Smathers  y.  Western  Carolina  Bank,  155-  4Bank  v.  Cocke,  127-467,  37  S.  E.  507. 

283,  71  S.  E.  345.  51921,  chap.  4,  sec.  24. 

2Long  v.  Bank,  90-405. 

31921,  chap.  4.  sec.  23;  Smathers  v. 

Western  Carolina  Bank,  155-283,  71  S.  E. 

345. 


270 


Banks  and  Banking 


in  all  the  bank's  assets  before  collecting*  the  obligation  assumed  by 
the  directors  when  it  then  appears  that  the  bank's  creditors  would 
not  be  paid  in  full.1 


Officers  and  agents.  Directors.  Every  director  of  a  State  bank 
chosen  after  the  eighteenth  of  February,  one  thousand  nine  hundred 
and  twenty-one,  must  be  the  owner  and  holder  of  shares  of  stock  in 
the  bank  having  a  par  value  of  not  less  than  live  hundred  dollars,  if 
such  bank  shall  have  a  capital  stock  of  more  than  fifteen  thousand 
dollars,  and  not  less  than  tivo  hundred  dollars  if  such  bank  shall  have 
a  capital  stock  of  fifteen  thousand  dollars  or  less.  And  every  such 
director  must  hold  such  shares  in  his  own  name,  unpledged  and  un¬ 
encumbered  in  any  way.  The  office  of  any  director  at  any  time 
holding  less  stock  than  above  required  shall  immediately  become 
vacant,  and  the  remaining  directors  must  declare  his  office  vacant 


and  proceed  to  fill  such  vacancy  forthwith.  Not  less  than  three- 
fourths  of  the  directors  of  every  State  bank  must  be  residents  of  the 
State  of  North  Carolina.2  Each  director  must,  within  thirtv  days 
after  his  election,  take  and  subscribe,  in  duplicate,  an  oath  that  he 
will  diligently  and  honestly  perform  his  duties  in  such  office  and 
that  he  is  the  owner  in  good  faith  of  the  shares  of  stock  of  the  bank 
required  to  qualify  him  for  such  office,  standing  in  his  own  name  on 
its  books.3 


Committees  of  directors.  The  board  of  directors  of  a  State 
bank  must  appoint  an  executive  committee  or  committees,  each  of 
which  shall  be  composed  of  at  least  three  of  its  members,  with  such 
duties  and  powers  as  are  defined  by  the  regulations  or  by-laws,  who 
shall  serve  until  their  successors  are  appointed.  Such  executive 
committee  or  committees  must  meet  as  often  as  the  board  of  directors 
may  require,  which  shall  not  be  less  frequently  than  once  each  month, 
and  approve  or  disapprove  all  loans  and  investments.4 

A  committee  of  at  least  three  directors  or  stockholders  of  each 
State  bank  must  be  appointed  annually  to  examine  or  to  superintend 
the  examination  of  the  assets  and  the  liabilities  of  the  bank,  and  to 


report  to  the  board  of  directors  the  result  of  such  examination.  The 
committee,  with  the  approval  of  the  board  of  directors,  may  provide 
tor  such  examination  by  a  certified  public  accountant  or  clearing¬ 
house  examiner  in  any  city  where  such  examination  is  provided  for 
by  the  rules  of  such  clearing-house  association.  A  copy  of  such 


’Hill  v.  Smathers,  173-642,  92  S.  E.  607. 
-’1921,  chap.  4,  sec.  51. 


31921,  chap.  4,  sec.  52. 
41921,  chap.  4,  sec.  49. 


Banking  Corporations  and  Associations 


271 


report  of  examination,  required  to  be  made,  attested,  and  verified 
under  oath  by  the  signature  of  at  least  three  members  of  such  com¬ 
mittee,  must  forthwith  be  filed  with  the  Corporation  Commission.1 


Officers  and  employees  give  bond.  The  active  officers  and 
employees  of  any  State  bank,  before  entering  upon  their  duties,  must 
give  bond  to  the  bank  in  a  bonding  company  authorized  to  do  busi¬ 
ness  in  North  Carolina,  in  the  amount  to  be  required  by  the  direc¬ 
tors,  in  such  form  as  may  be  prescribed  or  approved  by  the  Corpora¬ 
tion  Commission.  The  Corporation  Commission,  or  directors  of 
such  bank,  may  require  an  increase  of  the  amount  of  such  bond 
whenever  they  may  deem  it  necessary.  If  injured  by  the  breach  of 
any  bond  given,  the  bank  so  injured  may  put  the  same  in  suit  and 
recover  such  damages  as  it  may  have  sustained.2 


Liability  of  directors  as  to  bank  and  stockholders.  The 
relation  of  a  director  to  the  depositors  and  creditors  of  a  bank  is  that 
of  a  trustee  to  his  cestui  que  trust.3  Any  director  of  any  State  bank 
who  shall  knowingly  violate,  or  who  shall  knowingly  permit  to  be 
violated  by  any  officers,  agents  or  employees  of  such  bank,  any  of 
the  provisions  of  the  State  Banking  Act,  is  liable  personally  and 
individually  for  all  damages  which  the  bank,  its  stockholders  or  any 
other  person  shall  have  sustained  in  consequence  of  such  violation.4 
Directors,  however,  of  State  or  National  banks  are  not  insurers  of 
the  fidelity  of  the  officers  or  agents  whom  they  appoint,  nor  are  they 
responsible  for  losses  caused  by  the  wrongful  acts  of  such  officers  or 
agents,  unless  there  was  gross  negligence  in  making  such  appoint¬ 
ment  or  a  lack  of  proper  supervision.'1  W  hi le  directors  are  bound 
to  exercise  ordinary  skill  and  are  liable  for  losses  resulting  from 
mismanagement  of  the  affairs  and  business  of  the  bank,  they  are  not 
liable  for  excusable  mistakes  concerning  the  law,  and  for  errors  of 
judgment,  either  as  to  the  law  or  the  management,  when  acting  in 
good  faith,  though  good  faith  will  not  excuse  them  when  there  is 
lack  of  the  proper  care,  attention  and  circumspection  in  the  affairs 
of  the  corporation  which  is  exacted  of  them  as  trustees.  1  hey  must 
manage  the  affairs  and  business  of  the  bank  according  to  the  charter 
and  by-laws,  and  use  ordinary  diligence  to  supervise  the  conduct  of 
their  office  and  to  understand  the  condition  of  the  bank,  and  if  the} 
do  not,  and  loss  ensues,  they  are  liable  for  all  losses  their  misconduct 


11921,  chap.  4,  sec.  54. 

21921,  chap.  4,  sec.  61;  1921  (extra  ses¬ 

sion),  chap.  i8,  sec.  1. 


3Solomon  v.  Bates,  118-311,  24  S.  E.  478. 
41921,  chap.  4,  sec.  53. 

5Solomon  v.  Bates,  118-311,  24  S.  E.  478. 


272 


Banks  and  Banking 


may  inflict,  either  upon  stockholders  or  creditors.  A\hat  constitutes 
“ordinary  diligence”  must  be  determined  in  view  of  all  the  circum¬ 
stances.1 

If  the  directors  shall  give  authority  for  the  publication  of  a  false 
statement  of  the  hank’s  condition  when  they  know  of  its  falsity,  or 
with  reasonable  care  might  have  known  it,  they  are  personally  lia¬ 
ble.2  It  is  not  necessary  that  they  should  know  it,  or  might  have 
known  it,  to  be  such.  It  is  their  duty  to  know  it  to  be  true,  and 
they  are  liable  for  damages  sustained  by  any  one  dealing  with  the 
corporation,  relying  upon  the  truth  of  such  report.0  And  the  fact 
that  a  director  is,  by  a  private  arrangement,  excused  from  giving 
attention  to  the  publication  of  the  statements  on  account  of  being  a 
nonresident  of  the  town  wherein  the  bank  is  located  does  not  relieve 
him  of  his  liability.4  Directors  are  trustees  for  depositors  and  can 
be  held  liable  for  injuries  resulting  from  gross  negligence  on  their 
part  in  allowing  the  bank  to  be  held  out  to  the  public  as  solvent  when 
it  is  in  fact  insolvent.5 

Directors  who  by  false  and  fraudulent  statements  to  the  State 
Treasurer  as  to  the  condition  of  the  bank,  in  order  to  conceal  its 
insolvency,  induce  him  not  only  to  make  new  deposits  of  the  State’s 
money,  but  also  to  permit  a  portion  of  the  money  deposited  by  his 
predecessor  in  office  to  remain,  are  liable  to  such  Treasurer  for  any 
loss  either  of  the  old  or  new  deposits.6  Where  a  depositor,  on  going 
to  withdraw  his  deposit,  is  told  by  the  vice-president  and  director 
that  “the  bank  has  plenty  of  money,”  etc.,  and  is  thereby  induced 
to  allow  his  deposit  to  remain  when  the  bank  was  in  fact  insolvent, 
it  is  held  that  such  vice-president  and  director  is  personally  liable  to 
the  depositor  for  the  money  lost  by  the  failure  of  the  bank.7 

Directors  are  liable  if  they  declare  dividends  out  of  the  capital 
stock  or  deposits  of  a  bank  and  not  out  of  earnings.8 

Liability  of  president  and  vice-president.  The  liability  of 
the  president  and  vice-president  to  depositors  and  other  creditors 
for  losses  sustained  by  them  in  dealing  with  the  corporation  on  the 


Solomon  v.  Bates,  118-311,  318,  24  S.  E. 
478;  Caldwell  v.  Bates,  118-323,  24  S.  E. 
481. 

2Townsend  v.  Williams,  117-330,  23  S.  E. 
461;  Solomon  v.  Bates,  118-311,  24  S.  E. 
478;  Houston  v.  Thornton,  122-365,  29 
S.  E.  827. 

3Houston  y.  Thornton,  122-365,  29  S.  E. 
827.  See  Townsend  v.  Williams,  117-330, 
23  S.  E.  461;  Hauser  v.  Tate,  85-82;  Cald¬ 
well  v.  Bates,  118-323.  24  S.  E.  481. 


4Houston  v.  Thornton,  122-365,  29  S.  E. 
827;  Hauser  v.  Tate,  85-82;  Solomon  v. 
Bates,  118-311,  24  S.  E.  478. 

5Solomon  v.  Bates,  118-311,  318,  24  S.  E. 
478;  Houston  v.  Thornton,  122-365,  29 
S.  E.  827. 

GTate  v.  Bates,  118-287,  24  S.  E.  482. 
7Townsend  v.  Williams,  117-330,  23  S.  E. 
461. 

8Solomon  v.  Bates,  118-311,  24  S.  E.  478. 


Banking  Corporations  and  Associations  273 

faitli  of  misrepresentations  by  such  officers  as  to  its  financial  con¬ 
dition  or  other  facts  forming  a  material  inducement  to  the  deposit 
or  contract  is  the  same  as  that  of  directors.1 

Cashier  s  unauthorized  act.  A  cashier  has  no  authority  to 
agree  to  deposit  the  bank’s  funds  to  the  credit  of  a  depositor  in  pay¬ 
ment  of  his  individual  debt,  this  being  in  effect  an  unauthorized 
promise  to  loan  such  amount  from  the  bank’s  funds  without  note, 
security  or  payment  of  interest.2 


Liability  of  officers  paying  overdrafts.  Any  officer  (other 
than  a  director)  or  employee  of  a  State  bank  who  permits  any  cus¬ 
tomer  or  other  person  to  overdraw  his  account,  or  who  pays  any 
check  or  draft,  the  paying  of  which  shall  overdraw  any  account, 
unless  the  same  shall  be  authorized  by  the  hoard  of  directors  or  by 
a  committee  of  such  board  authorized  to  act,  is  personally  and  indi¬ 
vidually  liable  to  such  bank  for  the  amount  of  such  overdrafts.3 

t j 


Embezzlement  ;  false  certification  ;  insolvent,  receiving 
deposits,  etc.  Whoever,  being  an  officer,  employee,  agent,  or  director 
of  a  State  bank,  embezzles,  abstracts,  or  wilfully  misapplies  any  of 
the  money,  funds,  credit,  or  property  of  such  bank,  whether  owned 
by  it  or  held  in  trust,  or  wilfully  and  fraudulently  issues  or  puts 
forth  a  certificate  of  deposit,  draws  an  order  or  bill  of  exchange, 
makes  an  acceptance,  assigns  a  note,  bond,  draft,  bill  of  exchange, 
mortgage,  judgment,  or  decree,  or  makes  a  false  statement  or  cer¬ 
tificate  as  to  a  trust  deposit  or  contract,  for  or  under  which  such 
bank  is  acting  as  trustee,  or  makes  a  false  entry  in  or  conceals  the 
true  and  correct  entry  in  a  book,  report,  or  statement  of  such  bank, 
or  who  shall  loan  the  funds  or  credit  of  any  bank  to  any  company  or 
corporation  known  to  be  insolvent,  or  which  has  ceased  to  exist,  or  to 
any  person  upon  the  collateral  security  of  any  stocks  or  bonds  of 
such  company  or  corporation  which  is  known  to  he  insolvent,  or 
which  has  ceased  to  exist,  or  which  never  had  any  existence,  or  fic¬ 
titiously  borrows  or  solicits,  obtains  or  receives  money  for  a  bank  not 
in  good  faith,  intended  to  become  the  property  of  such  bank,  with 
intent  to  defraud  or  injure  the  bank  or  another  person  01  coipoia- 
tion,  or  to  deceive  an  officer  of  the  bank  or  an  agent  appointed  to 
examine  the  affairs  of  such  bank,  or  publishes  a  false  report  relating 
to  the  financial  condition  of  the  bank,  with  the  intent  to  conceal  its 


1Solomon  v.  Bates,  118-311,  319, 

S.  E.  478;  Caldwell  v.  Bates,  118-323, 
S.  E.  481. 


24 

24 


2Bank  v.  West,  184-220,  114  S.  E.  178. 
31921,  chap.  4,  sec.  60. 


274 


Banks  and  Banking 


true  financial  condition,  or  to  defraud  or  injure  it  or  another  person 
or  corporation,  is  guilty  of  a  felony,  and  upon  conviction  thereof 
can  be  fined  not  more  than  ten  thousand  dollars  or  imprisoned  in 
the  State’s  Prison  not  more  than  thirty  years,  or  both.1 

Whoever,  being  an  officer,  employee,  agent,  or  director  of  a  State 
bank,  certifies  a  check  drawn  on  such  bank,  and  wilfully  fails  to 
forthwith  charge  the  amount  thereof  against  the  account  of  the 
drawer  thereof,  or  wilfully  certifies  a  check  drawn  on  such  bank, 
unless  the  drawer  of  such  check  has  on  deposit  with  the  bank  an 
amount  of  money  subject  to  the  payment  of  such  check  and  equiva¬ 
lent  to  the  amount  therein  specified,  is  guilty  of  a  felony,  and  upon 
conviction  can  be  fined  not  more  than  five  thousand  dollars  or  im¬ 
prisoned  in  the  State’s  Prison  for  not  more  than  five  years,  or  both.2 

Any  person,  being  an  officer  or  employee  of  a  State  bank,  who 
receives,  or  being  an  officer  thereof,  permits  an  employee  to  receive 
money,  checks,  drafts,  or  other  property  as  a  deposit  therein  when 
he  has  knowledge  that  such  bank  is  insolvent,  is  guilty  of  a  felony, 
and  upon  conviction  thereof  can  be  fined  not  more  than  five  thousand 
dollars  or  imprisoned  in  the  State’s  Prison  not  more  than  five  years, 
or  both.3 

Any  officer  or  employee  committing  any  offense  against  the  bank¬ 
ing  laws  of  the  State  other  than  those  herein  mentioned  is  guiltv  of 
a  misdemeanor  and  is  punishable  at  the  discretion  of  the  court.4 

Directors  and  officers  accepting  fees.  44o  gift,  fee,  permis¬ 
sion  or  brokerage  charge  is  allowed  to  be  received,  directly  or  indi¬ 
rectly,  by  any  officer,  director,  or  employee  of  any  State  bank  on 
account  of  any  transaction  to  which  the  bank  is  a  party.  Any  officer, 
director,  employee,  or  agent  who  receives  any  such  is  guilty  of  a 
misdemeanor,  and  thereafter  remains  ineligible  as  an  officer,  director, 
or  employee  of  any  State  bank.  This  does  not  prevent  the  payment 
of  necessary  and  proper  attorney’s  fees  to  any  licensed  attorney  for 
professional  services  rendered.5 


Insolvency  and  dissolution.  Insolvency  defined.  The  term 
insolvency,7  as  applied  to  State  banks,  means:  (a)  when  a  bank 
cannot  meet  its  deposit  liabilities  as  they  become  due  in  the  regular 
course  of  business;  (A)  when  the  actual  cash  market  value  of  its 
assets  is  insufficient  to  pay  its  liabilities  to  depositors  and  other  cred¬ 
itors ;  (c)  when  its  reserve  shall  fall  under  the  amount  required  by 


11921,  chap.  4,  sec.  83. 

21921,  chap.  4,  sec.  84. 

31921,  chap.  4,  sec.  85. 


*1921  (extra  session),  chap.  56,  sec.  4. 
:,1921,  chap.  4,  sec.  57. 


Banking  Corporations  and  Associations 


tlie  State  Banking  Act,  and  it  shall  fail  to  make  good  such  reserve 
within  thirty  days  after  being  required  to  do  so  by  the  Corporation 
Commission.1 


Voluntary  liquidation.  A  State  bank  may  go  into  voluntary 
liquidation  and  be  closed,  and  may  surrender  its  charter  'and  fran¬ 
chise  as  a  corporation  of  this  State  by  the  affirmative  vote  of  its 
stockholders  owning  two-thirds  of  its  stock,  such  vote  to  be  taken  at 
a  meeting  of  the  stockholders  duly  called  by  resolution  of  the  board 
of  directors,  written  notice  of  which,  stating  the  purpose  of  the 
meeting,  must  be  mailed  to  each  stockholder,  or,  in  case  of  his  death, 
to  his  legal  representative  or  heirs  at  law,  addressed  to  his  last  known 
residence  ten  days  previous  to  the  date  of  said  meeting.  Whenever 
stockholders  shall  by  such  vote,  at  a  meeting  regularly  called  for 
the  purpose,  notice  of  which  must  be  given,  decide  to  liquidate  such 
bank,  a  certified  copy  of  all  proceedings  of  the  meeting  at  which  said 
action  shall  have  been  taken,  verified  by  the  oath  of  the  president 
and  cashier,  must  be  transmitted  to  the  Corporation  Commission  for 
its  approval.  If  the  Corporation  Commission  approves  the  same, 
it  must  issue  to  the  said  bank,  under  its  seal,  a  permit  for  such  pur¬ 
pose.  No.  such  permit  must  be  issued  by  the  Corporation  Commis¬ 
sion  until  said  Commission  shall  be  satisfied  that  provision  has  been 
made  by  such  bank  to  satisfy  and  pay  off  all  depositors  and  all  cred¬ 
itors  of  such  bank.  If  not  so  satisfied,  the  Corporation  Commission 
must  refuse  to  issue  a  permit,  and  is  authorized  to  take  possession 
of  said  bank  and  its  assets  and  business,  and  hold  the  same  and  liqui¬ 
date  said  bank  in  the  manner  provided  by  law.  When  the  Corpora¬ 
tion  Commission  approves  the  voluntary  liquidation  of  a  bank,  the 
directors  of  said  bank  must  cause  to  be  published  in  a  newspaper  in 
the  city,  town,  or  county  in  which  such  bank  is  located,  a  notice  that 
the  bank  is  closing  up  its  affairs  and  going  into  liquidation,  and 
notify  its  depositors  and  creditors  to  present  their  claims  for  pay¬ 
ment.  When  any  bank  shall  be  in  process  of  voluntary  liquidation, 
it  is  subject  to  examination  by  the  Corporation  Commission,  and 
must  furnish  such  reports  from  time  to  time  as  may  be  called  for  by 
the  Corporation  Commission.  All  unclaimed  deposits  and  dividends 
remaining'  in  the  hands  of  such  bank  shall  be  subject  to  the  provisions 
of  the  State  Banking  Act.2 


Corporation  Commission  may  take  charge,  when.  The  Cor¬ 
poration  Commission  may  take  possession  of  the  business  and  piop- 
erty  of  any  State  bank  whenever  it  shall  appeal  that  such  bank  has 


*1921,  chap.  4,  sec.  1. 


21921,  chap.  4,  sec.  15. 


27G 


Banks  and  Banking 


violated  its  charter  or  any  laws  applicable ;  is  conducting*  its  business 
in  an  unauthorized  or  unsafe  manner ;  is  in  an  unsafe  or  unsound 
condition  to  transact  its  business ;  has  an  impairment  of  its  capital 
stock ;  has  refused  to  pay  its  depositors  in  accordance  with  the  terms 
on  which  such  deposits  were  received ;  has  become  otherwise  insol¬ 
vent  ;  has  neglected  or  refused  to  comply  with  the  terms  of  a  duly 
issued  lawful  order  of  the  Corporation  Commission ;  has  refused, 
upon  proper  demand,  to  submit  its  records,  affairs,  and  concerns 
for  inspection  and  examination  to  a  duly  appointed  or  authorized 
examiner  of  the  Corporation  Commission ;  its  officers  have  refused 
to  be  examined  upon  oath  regarding  its  affairs.  Such  banks  may, 
with  the  consent  of  the  Corporation  Commission,  resume  business 
upon  such  terms  and  conditions  as  may  be  approved  by  it.1 

Enforcing  of  dissolution  by  Commission  or  creditor  ;  re¬ 
ceivership.  If  any  State  bank  neglect  or  refuse  for  a  period  of 
sixty  days  to  make  a  report  to  the  Corporation  Commission,  as  it 
may  demand,  or  fail,  neglect  or  refuse  to  comply  with  the  provisions 
of  the  next  preceding  paragraph,  or  if  at  any  time  the  Corporation 
Commission  find  a  bank,  or  other  institution  subject  to  its  super¬ 
vision,  in  an  insolvent  condition,  or  if  such  institution  neglect  or 
refuse  to  correct  any  irregularities  through  violation  of  the  State 
Banking  Act,  which  may  be  called  to  the  attention  of  the  president, 
cashier,  or  board  of  directors,  the  Corporation  Commission  has  au¬ 
thority  to  take  charge  of  such  institution,  and  if  upon  investigation 
it  appears  to  be  to  the  interest  of  creditors,  depositors,  and  stock¬ 
holders  that  a  receiver  should  be  appointed,  it  may  apply  to  the  court 
for  the  appointment  of  a  competent  person  as  receiver.2 

The  power  of  the  Corporation  Commission  to  ask  for  a  receiver 
does  not  preclude  a  creditor  from  also  exercising  the  right  he  has 
always  had  to  ask  for  one.3 

Powers  and  duties  of  receivers  generally.  Any  receiver 
appointed,  before  entering  upon  his  duties,  must  execute  a  good  and 
sufficient  bond  in  some  bonding  company  authorized  to  do  business 
in  A  or  th  Carolina,  which  bond  must  be  approved  by  the  court.  Such 
receiver,  under  the  direction  of  the  court,  must  take  possession  of 
the  books,  moneys,  records,  and  assets  of  every  description  of  such 
institution,  and  collect  all  debts,  dues  and  claims  belonging  to  it, 
foreclose  all  mortgages,  deeds  of  trust  and  other  liens  executed  to 
the  bank,  and  upon  order  of  the  court  may  sell  or  compound  all  bad 

dnol’  c£ap-  h  sec-  16-  3 W orth  v.  Piedmont  Bank,  1921-343,  28 

21921,  chap.  4,  sec.  17.  S.  E.  488. 


Banking  Coepokatioxs  axd  Associatioxs  277 

or  doubtful  debts,  and  on  like  orders  may  sell  all  real  and  personal 
properties  belonging  to  such  bank,  and  upon  such  terms  as  the  court 
may  approve  or  direct,  and,  if  necessary  to  pay  its  debts,  the  receiver 
may  enforce  the  individual  liabilities  of  its  stockholders.  A  suit 
for  such  purpose  may  be  instituted  against  resident  stockholders  in 
the  name  of  such  receiver  in  the  Superior  Court  of  the  county  in 
which  its  banking  office  or  home  is  located,  and  as  to  nonresident 
stockholders,  the  suit  may  be  brought  in  any  county  of  the  State 
where  such  stockholder  resides,  or  where  service  of  process  may 
be  had  on  such  stockholder.  After  payment  of  all  expenses  and  all 
claims,  the  remainder  of  the  proceeds,  if  any,  must  he  paid  to  the 
stockholders  of  such  bank,  or  their  legal  representatives,  in  propor¬ 
tion  to  the  stock  respectively  held  by  them.  Any  bank  which  is 
being  operated  or  liquidated  under  any  receivership  provided  in  the 
State  Banking  Act  shall  remain  subject  to  examination  and  super¬ 
vision  by  the  Corporation  Commission.1 

Where  there  are  two  or  more  coreceivers,  a  majority  of  them  has 
power  to  act.2  If  there  are  any  actions  pending  at  the  time  of  the 
appointment  of  a  receiver  in  which  the  hank  is  plaintiff,  the  receiver 
shall,  upon  application  by  him,  be  substituted  in  place  of  the  bank. 
In  fact,  the  receiver  can  do  all  acts  which  might  be  done  by  the 
bank,  if  in  being,  that  are  necessary  for  the  final  settlement  of  its 
unfinished  business.3  Dividends  and  unclaimed  deposits  remaining 
in  the  hands  of  the  receiver  for  a  period  of  six  months  after  the 
order  for  final  distribution  by  the  court  must  be  deposited  with  the 
State  Treasurer,  who  shall  hold  such  funds  as  custodian  without  the 
payment  of  interest,  subject  to  the  order  of  the  court  appointing  the 
receiver,  and  without  the  necessity  of  appropriation  by  the  General 
Assembly.  Any  person  entitled  to  all  or  any  part  of  such  unclaimed 
dividends  or  deposits  may  apply  to  the  court  of  the  county  in  which 
the  insolvent  bank  was  located,  or  had  its  principal  office,  for  an 
order  directing  the  State  Treasurer  to  pay  such  dividends  or  un¬ 
claimed  deposits.  Upon  satisfactory  proof  of  such  claim,  it  shall 
be  the  duty  of  the  court  to  issue  such  an  order  upon  the  State  I  reas- 
urer,  directing  the  payment  of  said  dividend  or  unclaimed  deposit, 
and  the  State  Treasurer  is  authorized,  empowered,  and  directed  to 
pay  out  such  moneys,  without  interest,  as  stated  in  the  order  of  the 
court  authorized  to  issue  such  orders. 


1C  S.,  1209;  1921,  chap.  4,  sec.  17. 
2C.  S.t  sec.  1208. 


3C.  S,  sec.  1209. 

41921,  chap.  4,  sec.  18. 


278 


Banks  and  Banking 


General  law  applicable  to  receivers.  Article  ten  of  chapter 
twenty-two  of  the  Consolidated  Statutes,  relating  to  receivers,  when 
not  inconsistent  with  the  provisions  of  the  banking  act  of  one  thou¬ 
sand  nine  hundred  and  twenty-one,  applies  to  receivers  of  banks.1 


Deposit  of  books  of  defunct  bank.  All  books,  papers,  and 
records  of  a  bank  which  has  been  finally  liquidated  must  be  deposited 
by  the  receiver  in  the  office  of  the  clerk  of  the  Superior  Court  for 
the  county  in  which  the  office  of  such  bank  is  located,  or  in  such 
other  place  as  in  his  judgment  will  provide  for  the  proper  safe¬ 
keeping  and  protection  of  such  books,  papers,  and  records.  The 
books,  papers,  and  records  referred  to  shall  be  held  subject  to  the 
orders  of  the  Corporation  Commission  and  the  clerk  of  the  Superior 
Court  for  the  county  in  which  such  bank  was  located.2 3 

«y 

Effect  of  dissolution.  When  a  State  bank  is  dissolved  by  ex- 
piration  of  its  charter  all  debts  due  the  bank  are  extinguished,  and 
therefore  when  a  note  has  been  given  to  the  cashier  as  trustee  for 
the  bank,  although  the  legal  title  is  in  him,  equity  will  restrain  its 
enforcement  after  the  bank  has  ceased  to  exist." 


Transfers  affected  by  insolvency.  Where  a  bank  has  de¬ 
posited  collateral  with  another  bank,  from  which  it  secures  funds, 
to  secure  the  payment  of  certain  past  debts  and  any  other  indebted¬ 
ness  it  might  owe  the  lending  bank,  upon  insolvency  of  the  borrowing 
bank  the  lending  bank  can  recover  for  such  indebtedness  afterward 
accruing,  notwithstanding  the  cashier  and  manager  of  the  borrowing 
bank  was  the  president  of  the  lending  bank  and  at  the  time  of  de¬ 
positing  the  securities  knew  that  the  bank  was  insolvent.4 


Who  are  debtors  and  creditors.  By  “debtors  to  the  bank”  are 
meant  all  those  who,  at  the  appointment  of  the  receiver,  were  liable 
to  the  bank  for  the  payment  of  money  (whether  their  liability  had 
matured  or  not),  and  without  any  regard  to  the  exact  nature  of  the 
liability  (whether  as  principal  or  surety).  The  word  “debtor”  does 
not  include  those  who  become  indebted  to  the  receiver,  for  the  same 
reason  that  a  person  who  has  become  indebted  to  an  administrator 
of  an  insolvent  estate  is  not  considered  a  debtor  to  the  intestate,  and 
allowed  to  set  up  against  that  debt  a  debt  due  from  the  deceased  to 
him.  He  owes  the  administrator  while  the  estate  owes  him.5  INTor 


11921,  chap.  4,  sec.  19;  1923,  chap.  148, 
sec.  4. 

21921,  chap.  4,  sec.  20. 

3Fox  v.  Horah,  36-358. 

4Corp.  Com.  v.  Bank.  164-205,  80  S.  E. 
152 ;  Norfleet  v.  Pamlico  Ins.,  etc.,  Co., 

160-327,  330,  75  S.  E.  937. 


5Davis  v.  Industrial  Mfg.  Co.,  114-321, 
19  S.  E.  371;  Pate  v.  Oliver,  104-458,  10 
S.  E.  709;  Rountree  v.  Britt,  94-i04; 
Mauney  v.  Ingram,  78-96. 


Banking  Corporations  and  Associations 


279 


is  it  intended  to  include  stockholders  or  officers  of  the  corporation 
against  whom  the  receiver  may  he  directed  to  bring  actions  to  recover 
sums  due  for  subscription  for  stock  or  other  like  claims.  In  all  mat¬ 
ters  pertaining  to  set-off,  such  indebtedness  or  liability  as  that  last 
named  is  considered  as  due  strictly  to  the  receiver,  and  not  to  the 
corporation.  By  Creditors  of  the  bank'’  are  meant  those  to  whom 
the  bank  was  indebted  at  the  date  of  the  appointment  of  the  receiver, 
whether  the  debts  were  then  due  or  not.1 


Rights  of  set-off.  Persons  holding  the  circulating  notes  of  a 
bank  at  the  time  it  becomes  insolvent  may  set  the  same  off  against 
their  indebtedness  to  the  bank.2  So  also  may  one  to  whom  the  bank 
is  indebted  for  services  before  it  closed  its  doors  set  off  his  claim 
against  a  liability  on  bills  discounted.3  But  a  stockholder  cannot 
set  off  his  distributive  share  in  the  assets  against  his  liabilitv  on  his 
stock.4 

‘  Presentation  and  proof  of  claims  ;  claims  with  collateral. 
All  claims  must  be  presented  to  the  receiver  within  the  time  pre¬ 
scribed  and  be  proven  to  his  satisfaction  or  adjudicated  in  a  court 
of  competent  jurisdiction.5  A  creditor  who  has  no  information  of 
the  limitation  of  time  in  which  claims  are  to  be  proven,  and  who  is 
not  guilty  of  laches  in  presenting  his  claim,  is  entitled  to  prove  after 
the  day  named.6  But  if  he  fail  to  make  application  to  do  so  until 
after  the  fund  is  distributed,  having  full  knowledge  of  the  proceed¬ 
ings,  he  will  be  barred  of  his  right.7  A  depositor  in  a  bank  who 
recovers  a  judgment,  which  is  satisfied,  against  one  who  held  him¬ 
self  out  as  its  president,  cannot  afterwards  prove  his  debt  against  the 
bank’s  assets.8 


Payment  of  claims;  claims  with  collateral.  All  expenses 
on  account  of  any  receivership  and  all  wages  or  salaries  due  officers 
or  employees  must  be  paid  out  of  the  assets  of  the  bank  before  dis¬ 
tribution  of  the  proceeds  thereof ;  and  the  receiver  may,  on  order  of 
the  court,  make  a  ratable  dividend  of  the  money  in  his  hands  on 
all  such  claims  as  may  have  been  proved,  and  as  the  proceeds  of  the 
assets  of  such  bank  are  paid  to  the  receiver,  he  must  on  like  oideis 
make  any  further  dividends  upon  all  claims  previously  proved  or 
adjudicated.9  In  the  case  of  a  bank  having  a  branch,  the  creditors 


mavis  v.  Industrial  Mfg.  Co.,  114-321, 

19  S.  E.  371.  , 

2Mann  v.  Blount,  65-99;  Blount  v.  Wind- 

ley,  68-1. 

mavis  v.  Industrial  Mfg.  Co.,  114-3H, 
19  S.  E.  371.  „  „  _ 

4Bank  v.  Riggins,  124-534,  32  S.  E.  801. 


51921,  chap.  4,  sec.  17. 

6Glenn  v.  Farmers  Bank,  80-97 ;  Green  v. 
R.  R.  Co.,  73-524;  Wordsworth  v.  Davis, 
75-159. 

7Glenn  v.  Farmers  Bank,  80-97. 
8Dobson  v.  Simonton,  95-312. 

91921,  chap.  4;  sec.  17. 


280 


Banks  and  Banking 


of  the  principal  bank  are  entitled  to  have  its  property  of  every  de¬ 
scription  applied  ratably  to  the  payment  of  their  claims,  and  no 
estoppel,  if  there  could  be  one  from  dealings  with  its  branch  bank, 
could  affect  the  creditors  of  the  principal  bank.1 

The  courts  declare  that  equity  and  justice  require  that  the  re¬ 
ceiver,  when  he  comes  to  make  a  settlement  with  one  who  is  a  cred¬ 
itor  of  the  bank,  shall  deduct  from  his  credit  all  those  sums  for  which 
he  is  debtor,  and  when  he  settles  with  a  debtor  to  the  hank  he  shall 
allow  him  credit  for  all  sums  for  which  he  is  a  creditor  of  the  hank.2 

Where  a  claim  is  secured  by  collateral,  the  creditor  is  entitled  to 
share  pro  rata  in  the  distribution  of  the  funds  of  the  full  amount  of 
the  debt  as  it  existed  at  the  time  of  the  declaration  of  insolvency, 
without  crediting  either  his  collaterals  or  collections  made  therefrom 
after  such  declaration,  subject  always  to  the  proviso  that  dividends 
must  cease  when  from  them  and  from  collaterals  realized  the  claim 
has  been  paid  in  full.3 


1Worth  v.  Bank,  122-397,  29  S.  E.  775. 

2Davis  v.  Industrial  Mfg.  Co.,  114-321 

19  S.  E.  371. 


3Bank  v.  Flippen,  158-334,  74  S.  E.  100, 
approving  Merrill  v.  Bank,  173  U.  S.  131, 
which  see;  Milling  Co.  v.  Stephenson,  161- 
510,  77  S.  E.  676;  Winston  v.  Biggs,  117- 
206,  23  S.  E.  316;  Brown  v.  Bank,  79-244. 


Chapter  III 

FUNCTIONS  AND  DEALINGS 


Exercise  of  banking  powers.  The  powers  of  a  bank  are  limited 
to  those  granted  to  it  in  its  charter.  The  purchase  by  a  bank  of  a 
draft  drawn  to  the  maker’s  order  and  endorsed  by  another  is  not 
foreign  to  the  purposes  of  its  charter  authorizing  it  to  accept  bills, 
notes,  and  other  negotiable  paper,  conceding  it  not  to  be  within  the 
powers  expressly  conferred,  and  the  bank  is  liable  thereon  to  its 
innocent  purchaser  for  value.  A  defense  of  ultra  vires ,  where  the 
draft  is  sold  to  an  innocent  party  for  value  and  the  bank  has  retained 
the  purchase-money  without  offer  to  restore  it,  is  untenable,  there 
being  nothing  in  the  transaction  that  is  either  illegal  or  against  public 
policy.1  So  also  is  the  defense  of  ultra  vires  untenable  when  a 
National  bank  consolidates  several  debts  into  one  and  a  new  note 
is’  given  and  a  mortgage  on  real  estate  executed  to  secure  it.  Even 
if  taking  a  mortgage  on  real  estate  by  a  National  bank  were  ultra 
vires ,  the  mortgage  would  not  be  void,  but  only  an  offense  against 
the  United  States,  of  which  the  mortgagor  could  not  avail  himself 
to  defeat  his  own  deed.2 


Exercise  outside  of  banking  hours.  Nothing  in  any  law  of 
this  State  in  any  manner  whatsoever  affects  the  validity  of,  or  renders 
void  or  voidable,  the  payment,  certification,  or  acceptance  of  a  check 
or  other  negotiable  instrument  or  any  other  transaction  by  a  bank 
in  this  State,  because  done  or  performed  during  any  time  other  than 
regular  banking  hours.  No  bank  in  this  State,  which  by  law  or 
custom  is  entitled  to  close  at  twelve  noon  on  any  Saturday,  or  for 
the  whole  or  part  day  of  any  legal  holiday,  is  compelled  to  keep 
open  for  the  transaction  of  business,  or  to  perform  any  of  the  acts 
or  transactions  aforesaid,  after  such  hour  on  any  Saturday  or  on 
■any  legal  holiday,  except  at  its  option." 


Rules  of  bank.  Where  prior  to  a  certain  date  one  was  a  regular 
customer  of  a  bank,  and  after  such  date  continued  as  a  regular  cus¬ 
tomer,  and  at  such  date  a  new  usage  and  custom  with  its  customers 
in  regard  to  their  deposits  was  adopted,  such  usage  and  custom  can¬ 
not  affect  the  rights  of  the  customer  in  question  unless  it  can  be  - 
shown  that  he  had  notice  of  the  change  in  the  ordinary  usage  and 
custom  of  the  bank  as  to  general  deposits.4 


1Sherrill  v.  Trust  Co.,  176-591,  97  S.  E. 
471. 

201dham  v.  Bank,  85-241. 


31921,  chap.  4,  sec.  35. 
4Boyden  v.  Bank,  65-13. 


282 


Banks  and  Banking 


Representation  of  bank  by  officers  or  agents.  Deposits.  In  the 
absence  of  special  authority  from  the  directors,  the  president  cannot 
authorize  the  cashier  to  pay  the  checks  of  a  person  who  holds  a 
claim  against  the  president,  hut  who  has  no  deposit  in  the  hank.1 
Nor  can  a  cashier  bind  the  hank  by  a  promise  to  one  holding  a  per¬ 
sonal  claim  against  him  to  deposit  funds  to  his  credit  to  meet  a 

check  on  the  bank  to  be  drawn  by  such  creditor." 

«/ 


Biles,  notes  and  securities.  It  is  beyond  the  scope  of  the  au¬ 
thority  of  a  cashier  to  accept  a  verbal  assignment  of  an  interest  in  a 
note  previously  assigned  to  another  bank  as  collateral  security  in 
payment  of  another  note.3  So  also  it  is  beyond  his  authority  to  make 
an  executory  verbal  agreement,  without  consideration,  to  take  in 
payment  of  a  note  due  the  bank  an  interest  for  the  same  amount  in 
a  note  upon  a  third  party  which  was  never  assigned  to  the  bank.4 
Without  special  authorization,  which  must  be  shown  by  one  claiming 
it,  the  cashier  cannot,  in  payment  of  the  debt  of  another  to  the  bank, 
accept  the  note  of  a  company  executed  by  the  cashier  as  officer  of 
it  and  bearing  his  personal  endorsement  as  security.5  Ror  has  he 
implied  authority  by  virtue  of  his  office  to  release  without  consider¬ 
ation  one  of  the  joint  makers  from  his  liability  on  a  note  given  to 
the  bank;  and  the  bank  is  not  bound  when,  without  consideration, 
the  cashier  agrees  that  if  one  of  the  two  makers  of  a  partnership 
note  pays  a  certain  amount  upon  a  well  secured  note  given  by  the 
other  individually  to  the  bank  such  other  maker  would  be  released 
from  all  liability  on  the  joint  note  sued  on.G 

A  bank  cashier,  knowing  that  a  partnership  exists,  is  not  guilty  of 
negligence  because  he  honors  checks  against  the  firm  account  when 
he  knows  that  the  money  of  the  account  so  paid  out  was  raised  by 
discounting  a  personal  note  of  one  of  the  partners,  particularly  where 
the  negotiations  relative  to  the  note  and  its  presentment  for  discount 
were  carried  out  by  the  drawer  of  the  checks  as  ostensible  agent  for 
his  partner,  with  the  apparent  purpose  of  raising  partnership  funds.7 

Representations.  When  a  surety  on  a  note  given  to  a  bank  by 
a  third  person  becomes  surety  on  a  renewal  note,  and  the  cashier 
informs  him  that  the  bank  has  sufficient  funds  of  the  maker  to  pay 
such  renewal  note,  that  its  execution  is  a  matter  of  form  necessary 

1Dowd  v.  Stephenson,  105-467,  10  S.  E.  BGrady  v.  Bank  and  Trust  Co.,  184-158 
1101.  113  S.  E.  667. 

2Bank  v.  West,  184-220,  114  S.  E.  178.  "Bank  v.  Lennon,  170-10,  86  S.  E.  715. 

3Piedmont  Bank  v.  Wilson,  124-561,  32  7Crutchfield  v.  Rowe  et  ux„  184-210  114 
S.  E.  889.  S.  E.  301. 

<Bank  v.  Wilson,  124-561,  32  S.  E.  889. 


Functions  and  Dealings 


283 


only  to  keep  the  bank  account  straight,  and  that  the  hank  will  not 
hold  him  liable  thereon,  the  bank  is  bound  by  such  representations 
and  promise.1 

AY  songful  acts.  Where  the  president  of  a  bank  misappropriates 
funds  of  a  correspondent  bank,  of  which  he  is  cashier,  it  does  not 
charge  such  bank  with  knowledge  of  the  misappropriation  so  as  to 
preclude  recovery  of  an  indebtedness  from  the  correspondent  hank, 
since  its  president,  in  misappropriating  the  funds,  acted  independ¬ 
ently  and  adversely  to  its  interests.2  A  bank  is  responsible  for  the 
conduct  of  its  cashier  in  having  a  note  signed  by  a  third  person  as 
maker,  in  blank  amount,  and  in  wrongfully  tilling  in  the  blank  for  a 
larger  sum  than  intended  and  misappropriating  the  surplus  to  his 
own  use.3 


Notice  to  officer  or  agent.  Where  an  officer  of  a  bank  has  a 
note  discounted  at  such  bank  for  his  personal  benefit,  he  being  a 
member  of  the  discount  committee,  the  bank  is  charged  with  his 
knowledge  of  all  defenses  to  it.4  This  might  not  be  so  if  his  active 
participation  in  agreeing  to  the  discounting  on  the  part  of  the  bank 
is  not  necessary.0  Where  a  defaulting  cashier  promises  to  place 
funds  to  defendant’s  credit  to  meet  a  check  without  defendant’s 
giving  a  note  or  security,  knowledge  of  conniving  cashier  will  not 
be  imputed  to  the  bank.0 


Deposits.  Defined.  The  term  “demand  deposits' ’  means  all  de¬ 
posits  the  payment  of  which  can  be  legally  required  within  thirty 
days.  The  term  “time  deposits’  means  all  deposits  the  payment  of 
which  cannot  be  legally  required  within  thirty  days.' 


Right  to  receive.  Any  bank  may  receive  deposits  of  funds  sub¬ 
ject  to  withdrawal  or  to  be  paid  upon  the  checks  of  the  depositor. 
All  deposits  in  such  banks  are  payable  on  demand,  without  notice, 
except  when  the  contract  of  deposit  shall  otherwise  provide.8  .  Any 
State  bank  conducting  a  savings  department  may  receive  deposits  on 
such  terms  as  are  authorized  by  its  board  of  directors  and  agreed 
to  by  its  depositors.  The  hoard  of  directors  must  prescribe  the 
terms  upon  which  such  deposits  shall  he  received  and  paid  out,  and 
a  passbook  must  be  issued  to  each  depositor  containing  the  rules  and 


mank  v.  Pegram,  118-671,  24 _S.  E.  487. 
Corporation  Commission  v.  Bank,  0lbi' 
357,  79  S.  E.  308;  same,  164-205,  80  b.  E. 
152;  Brite  v.  Penny,  157-110,  11L  7- 
S  E  964;  Anniston  Nat.  Bank  v  Scnool 
Committee,  118-383,  24  S.  E  792;  Bank  v. 
Burgwyn,  110-267,  14  S.  E.  623. 


3Phillips  v.  Hensley,  175-23. 

4Le  Due  y.  Moore.  111-516,  15  S.  E.  888. 
5Bank  v.  Burgwyn,  110-267,  14  S.  E. 

6Bank  v.  West,  184-220,  114  S.  E.  178. 
H921,  chap.  4,  sec.  1. 

81921,  chap.  4,  sec.  46. 


284 


Banks  and  Banking 


regulations  adopted  by  the  board  of  directors  governing  such  deposits, 
in  which  must  be  entered  each  deposit  made,  the  interest  allowed 
thereon,  and  each  payment  made  to  such  depositor.  By  accepting 
such  book  the  depositor  assents  and  agrees  to  the  rules  and  regula¬ 
tions  therein  contained.1 

Relation  between  bank  and  depositor  in  general.  The  de¬ 
positor,  when  and  as  soon  as  he  makes  a  deposit,  becomes  a  creditor 
of  the  bank,  and  the  bank  becomes  his  debtor  for  the  amount  of 
money  deposited,  agreeing  to  discharge  the  debt  so  created  by  honor¬ 
ing  and  paying  the  checks  or  orders  the  depositor  may,  from  time 
to  time,  draw  upon  it,  when  presented,  not  exceeding  the  amount 
deposited.  The  relation  of  the  bank  and  depositor  is  simply  that 
of  debtor  and  creditor,  the  debt  to  be  discharged  punctually,  in  the 
way  just  indicated.  The  contract  between  them,  whether  express 
or  implied,  is  legal  in  its  nature,  and  there  is  no  element  or  quality 
in  it  different  from  the  same  in  ordinary  agreements  or  promises, 
founded  upon  a  valuable  consideration  to  pay  a  sum  of  money, 
specified  or  implied,  to  another  party.  There  are  none  of  the  ele¬ 
ments  of  a  trust  in  it.  The  bank  does  not  assume  or  become  a  fiduci¬ 
ary  as  to  the  money  deposited  for  the  depositor,  nor  does  it  agree  to 
hold  a  like  sum  in  trust  for  him.  Hence,  if  the  bank  should  fail  to 
pay  its  depositor,  when  called  upon  to  do  so,  the  latter  would  have 
his  remedy  by  proper  action,  just  as  in  the  ordinary  case  where  the 
debtor  refused  to  pay  his  creditor  the  debt  he  owed  him.2 

Iitle  to  deposits.  When  a  bank,  in  the  course  of  its  business, 
receives  deposits  of  money  in  the  absence  of  any  agreement  to  the 
contrary,  the  money  deposited  with  it  at  once  becomes  that  of  the 
bank,  part  of  its  general  funds,  impressed  with  no  trust,  and  can  be 
used  by  it  for  any  purpose  immediately  and  continuously  just  as  it 
uses,  or  may  use,  its  moneys  otherwise  acquired,  which  right  con¬ 
stitutes  the  consideration  for  the  bank’s  promise  to  the  depositor.3 

Repayment  in  general;  interest.  Except  where  the  contract 
of  deposit  shall  otherwise  provide,  all  deposits  are  payable  on  de¬ 
mand  without  notice,4  such  deposits  being  deemed  general.  And  the 
depositor  has  no  right  to  the  particular  money  deposited,  as  in  the 
case  of  a  special  deposit,  but  only  a  sum  of  money  equal  to  that  which 
he  has  deposited.5  Where  a  deposit  is  made  in  certain  kind  of  cur- 


11921,  chap.  4,  sec.  47. 

2Hawes  v.  Blackwell,  107-196,  12  S.  E. 
245;  Boyden  v.  Bank,  65-13. 

3Hawes  v.  Blackwell,  107-196,  12  S.  E. 

245;  Perry  v.  Bank,  131-117,  42  S.  E. 

551;  Boyden  v.  Bank,  65-13. 


41921,  chap.  4,  sec.  46. 
r>Ruffin  v.  Board,  69-498 ;  Lilly  v.  Board, 
69-300. 


1  unctions  and  Dealings 


285 


rency  and  it  is  specified  that  it  must  be  repaid  in  like  currency, 
which  is  subject  to  fluctuation  in  value,  and  it  is  impossible  for  the 
bank  to  repay  m  the  certain  currency,  the  court  holds  that  payment 
must  be  made  so  as  to  put  the  loss  sustained  by  the  fluctuation  in 
value  on  the  bank  and  not  on  the  depositor.1  A  general  deposit  does 
not  bear  interest  in  the  absence  of  a  special  contract.2 


Application  of  deposits  to  debts  due  bank;  set-off  or 
counterclaim  ;  partnership.  In  the  absence  of  an  agreement  to 
the  contrary,  a  bank  may  apply  deposits,  other  than  special,  to  any 
indebtedness  due  it  in  the  same  right  by  the  depositor,  provided 
such  indebtedness  has  matured,  and  if  the  depositor  has  become  in¬ 
solvent,  whether  the  indebtedness  has  matured  or  not,  by  virtue  of 
the  right  of  equitable  set-off.3  And,  in  a  suit  against' it  for  the  de¬ 
posit,  the  bank  can  plead  the  indebtedness  to  it  as  a  counterclaim 
as  a  bill  or  action  in  the  nature  of  a  fi.  fa.4  It  is  only  where  the 
depositor  stands  in  the  same  relation  to  the  bank  as  the  debtor,  and 
deposits  funds  that  belong  to  him  and  held  by  him  in  the  same  right 
as  the  debtor,  that  the  bank  has  the  right  to  appropriate  and  apply 
the  deposits  to  the  payment  of  a  debt  due  to  it.  There  must  be  a 
mutuality  between  the  debt  and  the  fund  deposited.5  If  a  dealer 
with  a  bank  has  a  balance  to  his  credit  on  a  general  account,  and 
dies  indebted  to  the  bank  on  a  judgment  and  also  on  a  simple  con¬ 
tract,  the  bank  may,  independently  of  the  statute  of  set-off,  apply 
such  balance  to  whichever  debt  it  may  see  fit.6 

A  partnership  is  not  liable  for  the  debts  of  its  members,  and  a 
bank  has  no  right  to  apply  deposits  standing  in  the  name  of  the  firm 
in  payment  of  the  individual  indebtedness  of  any  of  its  members;7 
nor  can  the  bank  apply  individual  deposits  of  a  partner  to  the  in¬ 
debtedness  of  the  firm  to  the  bank.8  But  these  strict  applications 
of  the  principle  of  set-off,  as  it  prevails  at  law,  may  be  and  are  prop¬ 
erly  modified  when  by  reason  of  the  insolvency  of  the  parties  the 
question  has  been  reduced  as  a  matter  of  fact  to  one  of  mutual  in¬ 
debtedness  between  the  bank  and  the  claimant,  and  it  is  necessary 
to  allow  an  appropriation  of  the  debt  to  prevent  a  palpable  miscar¬ 
riage  of  justice.9  When  a  bank  knows  that  a  party  is  the  only  sur¬ 
viving  partner  of  a  firm,  and  that  he  is  making  deposits  as  such, 


*Fort  v.  Bank,  61-417,  420. 

2Boyden  v.  Bank,  65-13. 

3Hodgin  v.  Bank,  124-540,  32  S.  E.  887; 
Moore  v.  Trust  Co.,  178-118,  100  S.  E.  269. 

4Moore  v.  Trust  Co.,  178-118,  100  S.  E. 
269. 

5Hodgin  v.  Bank,  125-503,  34  S.  E.  709, 
712. 


eBank  v.  Armstrong,  15-519. 

7Hodgin  v.  Bank,  124-540,  32  S.  E.  887. 
8Hodgin  v.  Bank,  124-540,  32  S.  E.  887; 
Adams  v.  Bank,  113-332,  18  S.  E.  513. 

9Moore  v.  Banking  and  Trust  Co.,  173- 
180,  91  S.  E.  793,  and  cases  there  cited. 


286 


Banks  and  Banking 


it  lias  no  right  to  apply  them  to  the  payment  of  a  debt  created  by 
the  partnership  before  its  dissolution ;  nor  has  it  the  power  to  apply 
them  to  the  payment  of  an  individual  debt  of  a  deceased  partner, 
evidenced  by  a  note  endorsed  by  the  survivor,  for  firm  debts.1 

As  to  judgment  creditor,  judgment  debtors  bank  account  and 
notes  made  by  third  persons  deposited  by  judgment  debtor  to  secure 
his  notes  in  favor  of  the  bank  are  choses  in  action  which  the  bank 
may  appropriate  to  claims  matured  against  judgment  debtor  or  as 
to  which  it  has  the  right  of  equitable  set-off  if  judgment  debtor  is 
insolvent,  or  otherwise  according  to  contracts  the  bank  may  hold 
affecting  such  property.2 

Where  a  bank  in  whose  hands  is  a  trust  fund  participates  with 
the  trustee  in  a  misapplication  of  the  fund  by  applying  it  on  the 
debt  of  the  trustee,  the  bank  is  liable  to  the  cestui  que  trust* 

Set-off  by  depositor.  When  a  bank  closes  its  doors  and  com¬ 
mits  an  act  of  insolvency,  its  deposits,  whether  on  account  or  cer¬ 
tificate,  at  once  become  due,  without  demand  or  notice,  and  are  to 
be  set  off  against  a  depositor’s  debt  due  the  bank.4  But  a  depositor, 
when  sued  by  a  bank  on  a  note,  cannot,  after  the  bank  is  declared 
insolvent,  maintain  a  counterclaim  for  a  deposit  made  before  the 
bank  became  insolvent  and  after  the  suit  was  commenced.5 

One  of  several  endorsers  on  a  note  to  a  bank  which,  with  the  prin¬ 
cipal  maker,  becomes  insolvent,  is  entitled  to  set  off  his  deposit  in 
the  bank  as  against  his  contributive  share  of  the  note;  and,  in  jus¬ 
tice  and  equity,  the  receiver  must  adjust  such  share  in  view  of  the 
solvency  vel  non  of  the  other  endorsers. 

The  National  Banking  Act  contains  no*  express  provision  as  to  set¬ 
off  in  cases  of  insolvency  of  a  bank.  If  the  real  debtor  is  unable  to 
pay,  and  the  receiver  is  compelled  to  resort  to  the  endorser,  who  is 
eventually  to  be  the  loser,  he  has  the  same  equitable  claim  to  set  off 
bills  which  he  had  at  the  time  the  bank  stopped  payment.  But  no 
such  effect  should  be  allowed  to  an  endorser  where  he  is  indemnified 
bv  the  real  debtor,  or  where  the  latter  can  be  compelled  to  pay.6 

Payment  of  checks  generally  ;  minors’  deposits.  A  deposit 
in  a  bank  creates  a  debt  and  the  payment  of  the  checks  of  the  cus¬ 
tomer  discharges  such  debt  pro  tanto . '  A  bank  assumes  the  responsi- 

modgin  v.  Bank,  125-503,  34  S.  E.  709,  6Piedmont  Bank  v.  Wilson,  124-561,  32 

712.  S.  E.  889. 

2McIntosh  Grocery  Co.  v.  Newman,  184-  6Davis  v.  Industrial  Mfg.  Co.,  114-321, 

370,  114  S.  E.  535.  19  S.  E.  371. 

3Bank  v.  Clapp,  76-482.  7Boyden  v.  Bank,  65-13. 

4Davis  v.  Industrial  Mfg.  Co.,  114-321. 

19  S.  E.  371. 


1  UNCTIONS  AND  DEALINGS 


287 


bility  for  the  erroneous  payment  of  checks  not  drawn  or  authorized 
by  the  depositor.1  And  where  a  depositor  sends  money  to  the  bank 
by  another  party  and  the  bank  agrees  with  the  other  party  to  honor 
checks  drawn  in  depositor’s  name  by  him,  the  depositor  can  hold  the 
bank  liable,  there  being  neither  express  nor  implied  authority  given 
by  the  depositor  to  the  person  making  the  deposit  to  draw  checks.2 

Where  a  fiduciary  deposits  funds  belonging  to  the  trust  in  a  bank 
and  authorizes  the  beneficiary  to  draw  on  them,  and,  after  the  death 
of  the  fiduciary ,  he  continues  to  draw  and  the  bank  becomes  in¬ 
solvent,  a  receiver  cannot  recover  from  the  beneficiary  for  the  benefit 

of  the  bank’s  creditors  the  funds  drawn  after  the  death  of  the 
fiduciary.3 

If  the  depositor  should  draw  his  check  on  the  bank  for  some  part 
of  his  deposit — the  debt  the  bank  owed  him — the  payee,  or  holder 
of  such  check,  could  not  maintain  his  separate  action  against  the 
bank  for  nonpayment  of  the  check,  on  presentation  of  the  same  for 
payment  it  could  not,  until  the  bank  accepted  the  check,  or  agreed 
to  pay  it.  Then,  and  not  till  then,  would  the  bank  become  his  debtor 
in  his  sole  right  as  against  it.  The  check,  however,  in  the  hands  of 
the  payee  thereon,  or  the  holder  thereof,  would  give  an  interest  in 
the  deposit,  as  against  the  drawer,  to  the  amount  specified  in  the 
check,  subject  to  the  right  of  the  bank  to  pay  all  outstanding  checks 
of  the  depositor,  and  such  as  he  might  subsequently  draw,  and  which 
might  be  paid  before  it  had  notice  of  the  check  in  question,  and 
subject  to  the  right  of  the  bank  to  set  off  debts  due  which  the  deposi¬ 
tor  might  owe  at  the  time  such  check  should  be  presented.  The 
check,  as  to  drawer  thereof,  is,  in  effect,  an  assignment  to  the  holder 
thereof  to  the  amount  specified  in  the  check ;  and  under  the  method 
of  civil  procedure  in  this  State,  the  depositor  and  the  holder  of  the 
check  might  jointly  maintain  an  action  against  the  bank  for  the 
deposit,  in  case  it  failed  to  pay  the  same  when  called  upon,  and  they 
might  recover,  subject  to  the  rights  of  the  bank,  as  above  explained. 
And  so,  also,  if  the  depositor  had  given  his  check  for  the  whole  of 
his  deposit,  the  holder  might  maintain  his  separate  action  against  the 
bank,  if  it  refused  to  pay  the  same,  subject  to  its  rights  as  to  checks 
on  the  deposit  paid  before  notice  of  such  check,  and  likewise  subject 
to  its  rights  of  set-off.  This  is  so,  because  the  check  for  the  whole 
deposit  would  be,  in  effect,  an  assignment  of  the  depositor  s  whole 
debt  against  the  bank  to  the  holder  of  such  check.  He,  being  the 


1Bank  v.  Thompson.  174-349,  93  S.  E. 


2Goodloe  v.  Bank,  183-315,  111  S.  E. 


849;  McKaughan  v.  Trust  Co.,  182-543,  516. 


109  S.  E.  355. 


3Bank  v.  Waddell,  100-338,  6  S.  E.  414. 


288 


Banks  and  Banking 


real  owner  of  the  deposit — the  debt — might  sue  for  it  in  his  own 
name.  And  a  holder  of  a  check  for  a  part  of  the  deposit  might,  in 
some  cases,  have  appropriate  equitable  relief,  as  against  the  depositor 
and  the  bank,  if  they  should  seek  to  impair  his  rights  as  the  equitable 
owner,  against  the  drawer  of  part  of  the  deposit.  Such  check  makes 
the  holder  thereof  part  owner  of  the  deposit,  as  against  the  drawer, 
subject  to  the  rights  of  the  bank.  The  depositor  agrees,  in  effect,  by 
implication  of  law,  to  set  apart  so  much  of  his  deposit  as  is  specified 
in  the  check  for  the  holder  thereof.  As  against  the  drawer,  that 
much  of  the  deposit  belongs  to  the  drawee.  If,  however,  it  turns 
out  that  the  check  is  not  paid  by  the  bank  on  due  presentation  for 
payment,  the  holder  of  the  check  will  have  his  remedy  against  the 
drawer.  The  depositor — the  drawer — agrees  that  the  check  will  be 
paid  by  the  bank  when  it  shall  be  duly  presented  to  it  for  payment, 
and  if  it  shall  not  be,  then  there  will  be  a  breach  of  the  drawer’s 
contract  with  the  holder  of  the  check.1 

Whenever  any  person  who  is  a  minor  of  the  age  of  fifteen  years 
and  upwards  makes  a  deposit  in  any  bank,  the  same  must  be  held 
for  the  exclusive  benefit  and  right  of  such  minor,  free  from  the  con¬ 
trol  of  all  persons  whatsoever,  and  it  must  be  paid,  together  with 
the  interest,  if  there  be  any  interest  thereon,  to  the  person  in  whose 
name  the  deposit  is  made,  and  the  receipt,  check,  or  quittance  of 
such  minor  to  the  said  bank  is  a  valid  and  sufficient  release  and  dis¬ 
charge  for  such  deposit,  or  any  part  thereof,  to  the  bank  in  which 
said  deposit  was  made.2 

Payment  of  checks  of  fiduciaries  ;  liability  of  bank.  If  a 
fiduciary  makes  a  deposit  in  a  bank  to  his  personal  credit  of  checks 
drawn  by  him  upon  an  account  in  his  own  name  as  fiduciary,  or  of 
checks  payable  to  him  as  fiduciary,  or  of  checks  drawn  by  him  upon 
an  account  in  the  name  of  his  principal,  if  he  is  empowered  to  draw 
checks  thereon,  or  of  checks  payable  to  his  principal  and  endorsed 
by  him,  if  he  is  empowered  to  endorse  such  checks,  or  if  he  otherwise 
makes  a  deposit  of  funds  held  by  him  as  fiduciary,  the  bank  receiving 
such  deposit  is  not  bound  to  inquire  whether  the  fiduciary  is  com¬ 
mitting  thereby  a  breach  of  his  obligation  as  fiduciary ;  and  the  bank 
is  authorized  to  pay  the  amount  of  the  deposit  or  any  part  thereof 
upon  the  personal  check  of  the  fiduciary  without  being  liable  to  the 
principal,  unless  the  bank  receives  the  deposit  or  pays  the  check  with 
actual  knowledge  that  the  fiduciary  is  committing  a  breach  of  his 

'Hawes  v.  Blackwell,  107-196,  12  S,  E.  21921,  chap.  4,  sec.  38. 

245;  Perry  v.  Bank,  131-117,  42  S.  E.  551. 


Functions  and  Dealings 


289 


obligation  as  fiduciary  in  making  such  deposit  or  in  drawing  such 
check,  or  with  knowledge  of  such  facts  that  its  action  in  receiving 
the  deposit  or  paying  the  check  amounts  to  bad  faith.1 2 

If  a  deposit  is  made  in  a  bank  to  the  credit  of  a  fiduciary  as  such, 
the  bank  is  authorized  to  pay  the  amount  of  the  deposit  or  any  part 
thereof  upon  the  check  of  the  fiduciary,  signed  with  the  name  in 
which  such  deposit  is  entered,  without  being  liable  to  the  principal, 
unless  the  bank  pays  the  check  with  actual  knowledge  that  the  fiduci¬ 
ary  is  committing  a  breach  of  his  obligation  as  fiduciary  in  drawing 
the  check  or  with  knowledge  of  such  facts  that  its  action  in  paying 
the  check  amounts  to  bad  faith.  If,  however,  such  a  check  is  pay¬ 
able  to  the  drawee  bank  and  is  delivered  to  it  in  payment  of  or  as 
security  for  a  personal  debt  of  the  fiduciary  to  it,  the  bank  is  liable 
to  the  principal  if  the  fiduciary  in  fact  commits  a  breach  of  his  obli¬ 
gation  as  fiduciary  in  drawing  or  delivering  the  check." 


If  a  check  is  drawn  upon  the  account  of  his  principal  in  a  bank 
by  a  fiduciary  who  is  empowered  to  draw  checks  upon  his  principal’s 
account,  the  bank  is  authorized  to  pay  such  check  without  being 
liable  to  the  principal,  unless  the  bank  pays  the  check  with  actual 
knowledge  that  the  fiduciary  is  committing  a  breach  of  his  obliga¬ 
tion  as  fiduciary  in  drawing  such  check,  or  with  knowledge  of  such 
facts  that  its  action  in  paying  the  check  amounts  to  bad  faith.  If, 
however,  such  a  check  is  payable  to  the  drawee  bank  and  is  delneied 
to  it  in  payment  of  or  as  security  for  a  personal  debt  of  the  fiduciary 
to  it,  the  bank  is  liable  to  the  principal  if  the  fiduciary  in  fact  com¬ 
mits  a  breach  of  his  obligation  as  fiduciary  in  drawing  01  delivering 
the  check.3  Where  a  deposit  is  made  in  a  bank  in  the  name  of  two 
or  more  persons  as  trustees,  and  a  check  is  drawn  upon  the  trust 
account  bv  any  trustee  or  trustees  authorized  by  the'  other  trustee 
or  trustees  to  draw  checks  upon  the  trust  account,  neither  the  payee 
nor  other  holder  nor  the  bank  is  bound  to  inquire  whether  it  is  a 
breach  of  trust  to  authorize  such  trustee  or  trustees  to  draw  checks 
upon  the  trust  account,  and  is  not  liable  unless  the  circumstances 
be  such  that  the  action  of  the  payee  or  other  holder  or  the  bank 

amounts  to  bad  faith.4 


Liability  fob  nonpayment  through  error.  No  bank  is  liable 
o  a  depositor  because  of  the  nonpayment,  through  mistake  or  error, 
aid  without  malice,  of  a  check  which  should  have  been  paid  had  the 
nistake  or  error  of  nonpayment  not  occurred,  except  for  the  actual 


11923,  chap.  85.  sec.  9. 

21923,  chap.  85.  sec.  7. 


31923,  chap.  85,  sec.  8. 
•*1923,  chap.  85,  sec.  10. 


290 


Banks  and  Banking 


damage  by  reason  of  sucli  nonpayment  that  the  depositor  proves, 
and  in  such  event  the  liability  will  not  exceed  the  amount  of  damage 
so  proven.1 

Payment  of  forged  paper.  Banks  assume  the  responsibility  for 
the  erroneous  payment  of  checks  not  drawn  or  authorized  by  the 
depositor.2  But  no  bank  is  liable  to  a  depositor  for  payment  by  it 
of  a  forged  check  or  other  order  to  pay  money,  unless  within  sixty 
days  after  the  receipt  of  such  voucher  by  the  depositor  he  notifies 
the  bank  that  such  check  or  order  so  paid  is  forged.3  A  bank  is  pre¬ 
sumed  to  know  the  signatures  of  its  customers,  and  if  it  pays  a 
forged  check,  it  cannot,  in  the  absence  of  negligence  on  the  part  of 
the  depositor  whose  check  it  purports  to  be,  charge  the  amount  to 
his  account.4  When  a  bank  accepts  a  forged  check  from  another 
of  its  depositors  and  places  it  to  his  credit,  it  is  considered  as  a 
payment  of  the  check,  which,  without  anything  further  appearing, 
cannot  be  withdrawn ;  but  where  such  other  depositor  is  aware  of 
the  fact  of  forgery,  endorses  the  check,  and  it  is  accordingly  credited 
to  him  without  knowledge  of  such  facts  on  the  part  of  the  bank, 
the  bank  may  return  the  check  to  such  depositor  arid  rightfully 
charge  his  account  therewith,  without  reference  to  any  fraudulent 
intent  on  his  part.5 

Overdrafts.  Any  officer  (other  than  a  director)  or  employee  of 
a  bank  who  permits  any  customer  or  other  person  to  overdraw  his 
account,  or  who  pays  any  check  or  draft,  the  paying  of  which  shall 
overdraw  any  account,  unless  the  same  shall  be  authorized  by  the 
board  of  directors  or  by  a  committee  of  such  board  authorized  to 
act,  is  personally  and  individually  liable  to  such  bank  for  the  amount 
of  such  overdrafts.6 

If  a  cashier  of  a  bank  is  personally  indebted  to  a  depositor  and 
agrees  with  such  depositor  that  if  he  will  draw  a  check  on  the  bank 
overdrawing  his  account  at  that  time,  he,  the  cashier,  will  place 
funds  to  his  credit  to  make  it  good,  and  such  depositor  draws  such 
check  and  the  cashier  fails  to  deposit  the  promised  funds,  but  pays 
the  check,  thereby  creating  an  overdraft,  such  promise  of  the  cashier 
is  void,  being  in  effect  an  unauthorized  promise  to  loan  such  amount 
from  the  bank’s  funds  without  note,  security  or  payment  of  interest, 
and  the  bank  can  recover  of  the  depositor  the  overdraft.  The  knowl- 

*1921,  chap.  4,  sec.  38.  4Yarborough  v.  Trust  Co.,  142-377,  55 

2Bank  v.  Thompson,  174-349,  93  S.  E.  S.  E.  296;  Woodward  v.  Trust  Co.,  178- 

849.  184.  100  S.  E.  304. 

31921,  chap.  4,  sec.  33.  Woodward  v.  Trust  Co.,  178-184,  100 

S.  E.  304. 

e1921,  chap.  4,  sec.  60. 


Functions  and  Dealings 


291 


edge  of  the  conniving  cashier  will  not  be  imputed  to  the  bank.  It 
is  not  required  of  the  bank  to  give  notice  to  the  depositor  of  the  over¬ 
draft,  as  the  depositor  is  fixed  with  knowledge  of  the  condition  of 
his  account.* 

Certificates  of  deposit.  It  is  unlawful  for  any  bank  to  issue 
any  certificate  of  deposit  or  other  negotiable  instrument  of  its  in¬ 
debtedness  to  the  holder  thereof  except  for  lawful  money  of  the 
United  States,  checks,  drafts  or  bills  of  exchange  which  are  the  actual 
equivalent  of  such  money ;  nor  is  it  permissible  that  such  moneys, 
checks,  drafts,  or  bills  of  exchange  be  the  proceeds  of  any  note  given 
in  payment  of  the  purchase  price  of  any  stock.  Any  officer  or  em¬ 
ployee  of  any  bank  issuing  a  certificate  of  deposit  unlawfully  is 
guilty  of  a  misdemeanor,  and  upon  conviction  thereof  can  he  fined 
or  imprisoned,  or  both,  in  the  discretion  of  the  court.2 


Special  deposits.  A  special  deposit  is  a  naked  bailment,  and  on 
demand  of  the  bailor  restitution  must  be  made  of  the  thing'  de- 
posited."  And  as  the  bank  acquires  no  property  in  the  thing  de¬ 
posited,  and  derives  no  benefit  therefrom,  it  is  bound  only  to  keep 
the  deposit  with  the  same  care  that  it  keeps  its  own  property  of  a 
like  description.4  A  special  deposit  cannot  be  checked  upon,  because 
it  does  not  belong  to  the  bank.  It  remains  the  property  of  the  de¬ 
positor.  And  if  it  is  lost  or  stolen  without  the  negligence  of  the 
bank,  it  is  the  depositor’s  loss.  But  this  is  not  so  in  case  of  a  general 
deposit,  or  in  case  of  a  general  deposit  of  a  special  fund,  or  of  a 
fund  for  a  special  purpose,  where  the  facts  are  known  to  the  hank." 


Valuables  deposited  for  safe-keeping.  A  bank  has  authority 
to  act  as  agent  or  bailee  of  its  customers  for  the  safe-keeping  of  their 
valuable  papers.  It  receives  compensation  therefor  in  the  advantage 
it  obtains  in  attracting  and  retaining  the  business  of  its  patrons,  and 
its  liability  for  such  deposits  for  safe-keeping  is  not  that  of  a  gratui¬ 
tous  bailee,  responsible  only  for  its  gross  negligence,  but  its  liability 
is  governed  by  the  rule  of  the  prudent  man  in  the  care  of  papers  of 
such  character  deposited  with  him  for  hire,  or  commensurate  with 
the  value  of  the  property  under  the  particular  circumstances.6 


Collections.  Delation  between  bank  and  depositor  for  <  ol 
lection.  It  is  a  well-established  rule  that  when  negotiable  paper 


iBank  v.  West,  184-220,  114  S.  E.  178. 
21921,  chap.  4.  sec.  44. 

3Boyden  v.  Bank,  65-13 ;  State  Bank  y. 
Armstrong,  15-519;  Hodgin  y.  Bank,  ILj- 
503  34  S.  E.  709,  712;  Ruffin  v.  Orange, 
69  498;  Lilly  v.  Cumberland,  69-300. 


4Boyden  v.  Bank,  65-13. 

5State  Bank  v.  Armstrong,  15-519;  Hodgm 
v.  Bank,  125-503,  34  S.  E.  709,  712. 

6Trustees  v.  Banking  Co.,  182-298,  109 
S.  E.  6. 


292 


Banks  and  Banking 


is  deposited  with  a  bank  for  the  purpose  of  collection,  the  relation 
of  principal  and  agent  is  thereby  created  between  the  depositor  and 
the  bank.1  And  if  the  bank  discounts  its  depositor’s  drafts  under 
an  express  agreement  or  one  implied  from  the  course  of  dealings 
that  if  they  are  returned  unpaid  they  shall  be  charged  back  to  his 
account  and  returned  to  him,  the  bank  is  merely  an  agent  for  collec¬ 
tion  and  not  a  purchaser  of  the  paper  in  due  course.2  But  if  the 
depositor  is  in  debt  to  the  bank  and  a  draft  is  discounted  by  it  and 
the  proceeds  applied  in  discharge  of  such  debt,  the  bank  becomes  the 
owner  of  the  draft.3 

Title  to  paper  received  for  collection.  An  endorsement 
“for  collection”  of  a  draft  or  check  does  not  transfer  title  to  the 
endorsee,  but  merely  constitutes  him  the  agent  of  the  endorser.4  If 
the  paper  is  collected  and  the  proceeds  mingled  with  the  general 
funds  of  the  bank,  the  endorser  occupies  the  position  of  a  simple 
contract  creditor,  with  no  preference  over  other  creditors.5  That  a 
check  deposited  with  a  bank  for  collection  was  unrestrictedly  en¬ 
dorsed  to  the  bank,  and  credit  therefor  given  the  depositor,  does  not 
pass  the  title  to  the  bank,  where,  on  nonpayment  of  the  check,  its 
amount  was  to  be  charged  up  to  the  depositor,  so  as  to  prevent  its 
recovery  by  the  depositor  from  a  receiver  appointed  for  the  bank.6 

Authority  and  acts  in  making  collections  ;  subagents. 
Where  a  check  payable  in  another  place  is  deposited  with  a  bank  for 
collection,  the  duty  of  the  bank  so  receiving  the  check  in  the  first 
instance  is  to  seasonablv  transmit  the  same  to  a  suitable  bank  or 

1/ 

other  agent  at  the  place  of  payment  for  collection,  the  bank  so 
selected  under  such  circumstances  being  the  agent  of  the  owner  of 
the  check.  And  as  a  part  of  the  same  doctrine  it  is  well  settled  that, 
if  the  acceptor  of  a  bill  or  promissory  note  has  his  residence  in 
another  place,  it  shall  be  presumed  to  have  been  intended  and  under¬ 
stood  between  the  depositor  for  collection  and  the  bank  that  it  was 
to  be  transmitted  to  the  place  of  residence  of  the  promissor.7  And 
any  bank  so  receiving  for  collection  or  deposit  any  check,  note,  or 
other  negotiable  instrument  drawn  upon  or  payable  at  another  bank, 
located  in  another  town  or  citv,  whether  within  or  without  this  State, 

1Murchison  Nat.  Bank  v.  Dnnn  Oil  Mills  4Armour  Packing  Co.  v.  Davis,  118-548, 
Co.,  150-718,  64  S.  E.  885;  Runyon  v.  24  S.  E.  365;  Boykin  v.  Bank,  118-566, 
Latham,  27-551.  24  S.  E.  357. 

2W0rth  Co.  v.  Feed  Co.,  172-335,  90  5Bank  v.  Davis,  115-226,  20  S.  E.  370; 
S.  E.  295;  Latham  v.  Spragins,  162-404,  Bank  v.  Bank,  119-307,  25  S.  E.  971. 

78  S.  E.  282,  and  cases  cited;  Mangum  v.  6Armour  Packing  Co.  v.  Davis,  118-548, 

Mutual  Grain  Co.,  184-181,  114  S.  E.  2.  24  S.  E.  365. 

3Latliam  v.  Spragins,  162-404,  78  S.  E.  7Bank  v.  Floyd,  142-187,  55  S.  E.  95; 

282.  Bank  v.  Bank,  75-534. 


293 


I  UNCTIONS  AND  DEALINGS 


may  forward  such  instrument  for  collection,  direct  to  the  bank  on 
which  it  is  drawn,  or  at  which  it  is  payable,  and  such  method  of  for¬ 
warding  direct  to  the  payer  bank  is  deemed  due  diligence,  and  the 
failure  of  such  payer  bank,  because  of  its  insolvency  or  other  default, 
to  account  for  the  proceeds  thereof  will  not  render  the  forwarding 
bank  liable  therefor ;  but  such  forwarding  bank  must  have  used  due 
diligence  in  other  respects  in  connection  with  the  collection  of  such 
instrument.1  The  employment  of  a  subagent  is  justifiable,  because 
this  manner  of  conducting  business  is  the  usual  and  known  custom, 
and  in  a  business  which  requires  or  justifies  the  delegation  of  an 
agent’s  authority  to  a  subagent,  who  is  not  his  own  servant,  the 
original  agent  is  not  liable  for  the  errors  or  misconduct  of  the  sub¬ 
agent,  if  he  lias  exercised  due  care  in  the  selection.2 

The  endorsement  on  a  draft  in  course  of  collection  by  correspond¬ 
ing  bank,  “All  prior  endorsements  guaranteed,”  does  not  give  the 
drawee  bank  a  cause  of  action  against  the  cashing  bank  when  the 
name  of  the  drawer  has  been  forged  and  draft  is  paid  by  the  cashing 
bank  in  good  faith,  and  thereafter  the  draft  is  paid  by  the  drawee 
bank,  for  the  latter  is  presumed  to  know  the  signatures  of  its  deposi¬ 
tors  and  detect  the  forgery;  therefore  the  drawee  bank  may  not 
recover 'from  the  cashing  bank  the  amount  it  has  thus  paid,  upon 
the  allegation  that  the  latter  has  not  acted  with  reasonable  precau¬ 
tion  in  cashing  the  draft.3 

Where  the  bank  of  deposit  of  the  maker  of  a  note  is  the  one  speci¬ 
fied  as  the  place  of  its  payment,  and  also  the  one  to  which  the  note 
is  sent  at  maturity  for  collection,  the  maker’s  written  order  on  the 
note  to  the  bank  to  pay  it  from  his  deposits  is  sufficient ;  and  where 
the  bank  accepts  this  order  and  retains  the  note  without  entry  on  its 
books  for  some  days,  then  its  doors  are  closed  and  a  receiver  ap¬ 
pointed,  the  payee  of  the  note  is  held  responsible  for  the  acts  of  its 
agency  for  collection,  and  a  plea  of  payment  is  good. 

A  note  payable  at  the  bank  of  the  maker’s  deposit  is  of  itself  an 
order  on  the  bank  to  pay  the  note  at  maturity  for  the  account  of  the 

maker. u 


Rights  and  liabilities  as  to  proceeds.  A  bank  acquiring  in 
due  course  of  business  a  draft  for  the  price  of  goods,  with  hill  of 
lading  attached,  is  the  owner  thereof,  and  of  the  proceeds  on  the 
draft  being  paid,  but  where  the  bank  merely  takes  the  draft  and  bill 
of  lading  as  a  collecting  agent,  it  acquires  no  property  right  in  the 


11921,  chap.  4.  sec.  39. 

-Bank  v.  Floyd,  142-187,  55 

3Bank  v.  Trust  Co.,  168-605, 


S.  E.  95. 

85  S.  E.  5. 


4Peaslee  v.  Dixon,  172-411,  90  S.  E.  421. 
5Pell’s  Revisal,  sec.  2237 ;  C.  S.,  3069. 


294 


Banks  and  Banking 


proceeds.1  That  drafts  collected  by  a  bank  were  for  shipments  of 
liquor  does  not  defeat  plaintiffs  right  to  recover  from  the  bank  the 
amount  collected,  since,  where  an  agent  receives  money  to  his  prin¬ 
cipal’s  use,  it  is  immaterial  whether  it  was  paid  on  a  legal  or  illegal 
contract.2 

It  is  a  well  known  and  established  custom  of  banks,  when  acting 
as  collecting  agents,  either  for  banks  or  indeed  for  any  customer,  to 
put  all  collections  made  by  them  into  the  general  fund  of  the  bank, 
unless  directed  to  make  of  them  a  special  deposit,  and  use  them  from 
hour  to  hour,  and  from  day  to  day,  in  the  transaction  of  their  current 
business,  and,  when  the  day  or  the  hour  arrives  for  making  remit¬ 
tances,  to  send  to  the  bank  or  other  customer  for  whom  the  collection 
was  made,  not  the  identical  currency  or  money  collected,  but  money 
or  currency  taken  from  the  general  fund  without  any  reference  to 
its  identity,  or,  as  is  far  oftener  done,  its  cashier’s  check  on  itself 
or  some  other  bank,  or  in  some  way  to  effect  a  transfer  of  the  fund 
by  the  use  of  credits  of  one  kind  or  another  without  the  handling  and 
shipping  of  any  actual  money  or  currency  at  all.3 

Where  a  draft  is  sent  to  a  bank  for  collection,  and  it  is  so  re¬ 
stricted  by  endorsement,  the  bank  is  authorized  to  carry  the  proceeds 
of  the  draft,  when  collected,  into  its  general  assets ;  and  when  it  does 
so,  the  relationship  between  the  drawer  or  forwarder  of  the  draft 
and  the  bank  becomes  that  of  creditor  and  debtor,  so  that,  on  assign¬ 
ment  of  the  bank  by  reason  of  insolvency,  such  drawer  or  forwarder 
can  only  share  in  the  assets  pro  rata  with  the  general  creditors.4 

Under  an  agreement  between  two  banks  that  one  should  collect 
notes  and  checks  forwarded  it  by  the  other  for  a  commission,  and 
remit  daily,  the  relation  of  principal  and  agent  as /to  any  paper  ceased 
on  collection  and  the  relation  of  creditor  and  debtor  as  to  the  cash 
immediately  arose. 

A  collecting  bank  is  not  chargeable  as  for  a  conversion  for  funds 
collected  for  a  correspondent  which  it  mingled  with  its  own  funds 
previous  to  its  failure,  in  the  absence  of  knowledge  by  its  cashier 
of  its  insolvency.5 

Where  a  collecting  bank  credits  the  account  of  the  sending  bank 
with  the  proceeds  of  a  draft  endorsed  over  to  the  sending  bank  “for 
collection,”  whose  agency  was  afterwards  revoked,  it  does  not  dis¬ 
charge  liability  to  the  drawer,  unless  the  money  was  actually  trans- 

1Elm  City  Lumber  Co.  v.  Childerhose,  Corporation  Comm.  v.  Bank,  137-697. 

167-34,  83  S.  E.  22.  50  S.  E.  308;  Bank  v.  Davis,  115-226,  20 

2Arey  Distilling:  Co.  v.  Mutual  Aid  Bkg.  S.  E.  370. 

Co..  163-66,  79  S.  E.  287.  5Bank  v.  Davis,  114-343,  19  S.  E.  280. 

3Bank  v.  Davis,  114-343,  19  S.  E.  280. 


Functions  and  Dealings 


295 


mitted  to  the  sending  hank  before  notice  of  the  revocation  of  its 
agency.1  Wherever  it  appears  on  the  face  of  a  paper  that  it  was  in 
the  possession  of  a  hank  for  collection,  the  proceeds  of  the  paper 
are  the  property  of  the  owner,  and  the  actual  collecting  hank  is  liable 
to  the  owner  in  case  of  the  insolvencv  of  any  intermediary  hank 
which  has  received  it  for  collection,  unless  the  collecting  hank  has 
remitted  the  proceeds,  or  its  equivalent,  to  the  transmitting  hank 
before  it  had  knowledge  of  such  transmitting  bank’s  insolvency.2 

Where  one  hank,  as  the  agent  of  a  customer,  sends  a  draft  for 
collection  to  another  hank  between  which  and  the  former  the  business 
arrangement  is  that  each  shall  daily  remit  for  the  items  sent  by  and 
collected  for  the  other,  the  collecting  bank  is  not  a  purchaser  for 
value  by  reason  of  the  fact  that  it  has  a  balance  against  the  forward¬ 
ing  hank,  and  has  no  right,  as  against  the  owner  of  the  paper,  to 
apply  the  proceeds  to  the  credit  of  the  account  of  the  forwarding 
bank,  especially  when,  before  the  paper  is  collected,  the  latter  hank 
fails  and  suspends  business.3 


Right  to  compensation.  All  banks  and  trust  companies  in  this 
State  have  authority  to  charge  a  fee  on  remittances  covering  checks 
of  not  in.  excess  of  one-eighth  of  one  per  cent,  the  minimum  fee  being 
ten  cents.  But  this  provision  does  not  apply  to  checks  drawn  in 
payment  of  obligations  due  the  State  or  Federal  Government. 


Payment  by  drawee  bank.  Whenever  a  check  is  presented  to 
the  drawee  bank  for  payment  by  or  through  any  Federal  Reset  \e 
Bank,  postoffice  or  express  company,  or  any  respective  agents  thereof, 
unless  specified  on  the  face  thereof  to  the  contrary  by  the  makei  01 
makers  thereof,  such  check  is  payable  at  the  option  of  the  drawee 
bank,  in  exchange  drawn  on  the  reserve  deposits  of  said  drawee 
bank.5  This  does  not  apply,  however,  to  checks  drawn  in  payment 
of  obligations  due  the  State  or  Federal  Government.6 

O 


Certain  notations  on  checks  prohibited.  It  is  declared  un¬ 
lawful  for  any  person  or  persons,  other  than  the  maker  thereof,  to 
make,  by  rubber  stamp  or  otherwise,  any  notation  on  any  cheek- 
drawn  on  any  bank  or  trust  company  chartered  in  this  State,  the 
effect  of  which  notation  shall  change  or  affect  any  condition  or  pro¬ 
vision  thereof,  as  created  by  law,  with  reference  to  the  amount  to 


1  Boykin,  etc.,  Co.,  v.  Bank,  118-566,  24 
S.  E.  357;  Bank  v.  Bank,  119-30/, 

JBank  v.  Bank,  119-307,  25  S.  E.  J><1, 


3Stevenson  v 
41921,  chap. 
51921,  chap. 
G1921,  chap. 


Bank,  113-485. 
20,  secs.  1,  4. 
20,  sec.  2. 

20,  sec.  4. 


296 


Banks  and  Banking 


be  charged  for  its  collection,  liow  remittance  for  it  is  to  be  made  by 
drawee  to  collecting  bank,  and  its  protest  when  based  alone  on  the 
ground  of  refusal  to  pay  exchange  or  collection  charges.  Any  person 
or  persons  violating  this  provision  is  guilty  of  a  misdemeanor,  and 
upon  conviction  must  pay  a  fine  of  not  more  than  two  hundred  dol¬ 
lars  or  be  imprisoned  not  more  than  thirty  days.1 

Failure  to  collect.  A  bank  must  use  due  diligence  to  collect, 
else  its  failure  to  collect  when  paper  is  presented  may  subject  it  to 
liability  for  the  amount  of  it.2  When  commercial  paper  is  sent  to 
a  bank  for  collection,  it  is  the  duty  of  the  bank  to  make  presentment 
for  payment  at  maturity.  If  it  is  not  then  paid,  the  hank  must  fix 
the  liability  of  the  drawer  by  protest  and  notice  of  dishonor ;  and 
if  it  fails  in  any  of  these  duties  it  becomes  liable  in  damages.  It 
is  no  excuse  that  if  the  paper  had  been  presented  for  payment  it 
would  not  have  been  paid.  The  failure  of  the  bank  to  present  for 
acceptance  and  payment  makes  the  paper  its  own ;  and  it  is  liable 
for  the  amount  thereof.3 

Where  a  bank  receives  a  check  on  itself  from  a  depositor  for  col¬ 
lection,  and  fails  without  excuse  to  notify  such  depositor  of  its  non¬ 
payment,  it  is  chargeable  with  negligence.4 

Failure  to  fix  liability.  Where  a  bank  receiving  paper  for 
collection  unreasonably  delays  in  fixing  liability,  the  bank  will  be 
chargeable  with  the  amount  of  the  payment.5 

Refusing  payment  when  refusal  to  pay  exchange;  no  pro¬ 
test  allowed.  Ho  officer  in  this  State  is  allowed  to  protest  for  non¬ 
payment  any  check  or  checks  drawn  on  any  bank  or  trust  company 
chartered  by  this  State  when  payment  is  refused  by  the  drawee  bank 
solely  on  account  of  failure  or  refusal  of  the  holder  or  owner  thereof 
to  pay  exchange  charges  authorized ;  and  there  is  no  right  of  action, 
either  in  law  or  equity,  against  any  bank  or  trust  company  chartered 
by  this  State,  for  refusal  to  pay  any  such  check  when  such  action  is 
based  alone  on  the  ground  of  refusal  to  pay  exchange  or  collection 
charges  herein  authorized.6 

Loans  and  discounts.  Powers  and  restrictions.  The  charter 
of  the  bank,  when  it  attempts  to  state  to  what  classes  of  people  loans 
can  be  made,  is  controlling.  It  has  been  held  that  where  the  charter 

11921,  chap.  20,  sec.  3.  4Bank  v.  Kenan,  76-340. 

2Bank  v.  Greensboro  Loan  and  Trust  Co.,  5Bank  v.  Kenan,  76-340. 

159-85,  74  S.  E.  747.  61921,  chap.  20,  sec.  5. 

3Bank  v.  Greensboro  Loan,  etc.,  Co.,  159- 

85,  74  S.  E.  747. 


297 


Functions  and  Dealings 


authorized  loans  to  any  “planter,  farmer,  miner,  manufacturer,  or 
other  person,  it  did  not  authorize  loans  to  merchants,  as  it  was  the 
evident  intent  ot  the  Legislature  to  benefit  only  the  producing  class.1 
Nor  can  any  State  bank  lend  to  an  officer  who  is  actively  en<xaa’ed  in 
its  management,  or  to  any  of  its  employees,  any  amount  whatever, 
except  upon  good  collateral  or  other  ample  security  or  endorsement, 
and  no  such  loan  can  he  made  until  after  it  has  been  approved  by  a 
majority  of  the  directors  or  a  committee  of  the  hoard  of  directors 
authorized  to  act.2 

When  the  reserve  of  any  bank  falls  below  the  amount  required  by 
law,  it  cannot  make  new  loans  or  discounts  otherwise  than  by  dis¬ 
counting  or  purchasing  bills  of  exchange,  payable  at  sight  or  on 
demand,  nor  make  dividends  of  its  profits  until  the  reserve  required 
by  law  is  restored.  The  Corporation  Commission  must  require  any 
bank  whose  reserve  falls  below  the  amount  herein  required  immedi¬ 
ately  to  make  good  such  reserve.  In  case  the  bank  fails  for  thirty 
days  thereafter  to  make  good  its  reserve,  the  Corporation  Commis¬ 
sion  may  forthwith  take  possession  of  the  property  and  business  of 
such  bank  until  its  affairs  be  adjusted  or  finally  liquidated  as  pro¬ 
vided  for  by  law.3 


Collateral  security.  State  banks  can  make  loans  on  any  good 
collateral  that  is  marketable,  but  it  is  unlawful  for  any  bank  to  make 
any  loan  secured  by  the  pledge  of  its  own  shares  of  stock,  nor  can 
any  bank  be  the  holder  as  pledgee,  or  as  purchaser,  of  any  portion  of 
its  capital  stock  unless  such  stock  is  purchased  or  pledged  to  it  to 
prevent  loss  upon  a  debt  previously  contracted  in  good  faith.4 

Where  a  bank  charter  stated  that  “advancements  may  be  made," 
etc.,  “taking  liens/'  it  is  held  that  the  charter  contemplated  that  the 
two  should  be  contemporaneous  acts,  and  not  that  the  bank,  at  any 
time  after  making  an  advancement,  could  take  a  lien  on  all  future 
purchases  of  the  mortgagor  for  a  general  balance  due  on  such  ad¬ 
vancements.0 

Interest  ;  rates  of  discount  ;  usury.  The  legffi  rate  of  interest 
is  six  per  cent  and  no  more.6  All  bonds,  bills,  notes,  and  bills  of 
exchange  bear  interest  from  the  maturity  thereof  unless  otherwise 
specified.  All  such  payable  on  demand  bear  interest  from  the  date 
demandable  unless  otherwise  specified.  Bills  of  exchange  drawn  or 
endorsed  in  this  State  and  which  have  been  protested  bear  interest, 


iBank  v.  Williams,  etc.,  Co.,  79-129. 
U921,  chap.  4,  sec.  62. 

31921,  chap  4,  sec.  71. 


41921,  chap.  4,  sec.  45. 

5Bank  v.  Williams,  etc.,  Co.,  79-129. 
6C.  S.,  2305. 


298 


Banks  and  Banking 


not  from  the  date  thereof,  hut  from  the  time  of  payment  therein 
mentioned.1  The  provision  in  a  bank  charter  that  it  can  “lend  money 
upon  such  terms  and  rates  of  interest  as  may  he  agreed  upon’7  does 
not  authorize  such  hank  to  charge  more  than  the  legal  rate.2  The 
taking,  receiving,  reserving  or  charging  a  greater  rate  of  interest  than 
six  per  cent  per  annum,  either  before  or  after  the  interest  may  accrue, 
when  knowingly  done,  works  a  forfeiture  of  the  entire  interest  which 
the  note  or  other  evidence  of  debt  carries  with  it,  or  which  has  been 
agreed  to  be  paid  thereon.  And  in  case  a  greater  rate  of  interest 
has  been  paid,  the  person,  or  his  legal  representatives,  .or  corporation 
by  whom  it  has  been  paid  may  recover  back  twice  the  amount  of 
interest  paid.3  A  note  tainted  with  usury  retains  the  taint  in  the 
hands  of  a  subsequent  holder  ;4  therefore,  a  note  embracing  usurious 
stipulation  is  void  as  against  the  maker  in  the  hands  of  a  purchaser 
before  maturity  for  value  and  without  notice  to  the  extent  to  which 
the  contract  is  usurious.5  A  provision  in  a  charter  allowing  a  bank 
to  lend  money  at  a  usurious  rate  does  not  confer  power  upon  it  to  do 
so,  but  a  provision  to  borrow  money  at  such  rate  is  not  objection¬ 
able.5  The  custom  of  merchants  will  not  be  allowed  to  modify  the 
usury  laws.7  An  agreement  to  pay  interest  on  a  note  “at  the  rate  of 
six  per  cent  per  annum,  to  be  compounded  annually,77  renders  a  con¬ 
tract  usurious,8  but  interest  upon  interest  due  at  a  specified  time  and 
unpaid  is  not  usury.9 

Bank  acceptances.  Any  State  bank  may  accept  for  payment 
at  a  future  date  drafts  or  bills  of  exchange  having  not  more  than 
six  months  sight  to  run,  drawn  upon  it  by  its  customers  under  accept¬ 
ance  agreements,  and  which  grow  out  of  transactions  involving  the 
importation  or  exportation  of  goods,  and  issue  letters  of  credit 
authorizing  the  holders  thereof  to  draw  upon  it  or  its  correspondents, 
provided  that  there  is  a  definite  bona  fide  contract  for  the  shipment 
of  goods  within  a  specified  reasonable  time,  and  the  existence  of  such 
contract  is  certified  in  the  acceptance  agreement,  or  which  grow  out 
of  transactions  involving  the  domestic  shipment  of  goods,  provided 
that  shipping  documents,  conveying  or  securing  to  the  accepting  bank 
title  to  readily  marketable  goods,  are  attached  or  in  the  hands  of  an 
agent  of  the  accepting  bank,  independent  of  the  drawer,  for  his 
account,  at  the  time  of  acceptance,  or  which  are  secured  at  the  time 

1C.  S.,  2307.  6Bank  v.  Mfg.  Co.,  96-298. 

^Simonton  v.  Lanier,  71-498.  7Gore  v.  Lewis,  109-539,  13  S.  E.  909. 

C.  S.,  sec.  2306.  8Cox  v.  Brookshire,  76-314. 

“Faison  v.  Grandy,  126-827.  9Crowell  v.  Jones.  167-386,  83  S  E. 

5Ward  v.  Sugg,  113-489,  18  S.  E.  717,  551;  Scott  v.  Fisher,  110-311,  14  S.  E.  799. 

overruling  Coor  v.  Spicer,  65-401. 


Functions  and  Dealings 


299 


of  acceptance  by  warehouse  receipts  or  other  documents  conveying 
or  securing  to  the  accepting  bank  title  to  readily  marketable  goods 
fully  covered  by  insurance,  the  warehouse  receipts  or  other  docu¬ 
ments  to  be  those  of  a  responsible  warehouse,  independent  of  the 
drawer,  the  acceptance  to  remain  secured  during  the  life  of  the 
acceptance  unless  suitable  security  of  same  character,  or  cash,  be  sub¬ 
stituted.  No  State  bank,  however,  can  accept  drafts  or  bills  of 
exchange  to  an  aggregate  amount  at  any  time  more  than  equal  to  the 
sum  of  its  capital  and  permanent  surplus.  Nor  can  a  bank  accept, 
whether  in  a  foreign  or  domestic  transaction,  for  any  one  person, 
firm,  or  corporation,  to  any  amount  at  any  time  equal  to  more  than 
twenty-five  per  cent  of  its  capital  and  permanent  surplus,  unless  the 
accepting  bank  is  secured  either  by  attached  documents  or  those  held 
by  its  account  by  its  agent,  independent  of  the  drawer,  or  by  some 
other  actual  security  of  the  same  character.  Should  the  accepting 
bank  purchase  or  discount  its  own  acceptances,  such  acceptances  will 
be  considered  as  a  direct  loan  to  the  drawer,  and  be  subject  to  the 
limitation  on  loans  heretofore  stated.  The  Corporation  Commission 
may  issue  such  further  regulations  as  to  such  acceptances  as  it  may 
deem  necessary  in  conformity  with  law.  As  used  herein,  the  word 
“goods”  must  be  construed  to  mean  and  include  goods,  wares,  mer¬ 
chandise,  or  agricultural  products,  including  livestock.1 

Repayment  of  loans.  A  borrower  cannot  take  advantage  of  a 
cashier’s  mistake  in  cancelling  his  note,  and  claim  that  his  loan  has 
been  paid.  A  case  in  point  is  where  a  borrower  gave  to  the  lender 
bank  a  draft  in  payment  of  his  note,  with  the  understanding  that 
when  the  draft  was  collected  the  note  would  be  canceled.  The 
cashier,  through  error,  canceled  the  note  and  sent  it  to  the  borrower. 
The  draft  went  to  protest.  The  court  held  that  there  was  no  pay¬ 
ment  of  the  note.2 


11921,  chap.  6,  sec.  37. 


2Dewey  v.  Bowers,  26-538. 


AN  ACT  TO  PROVIDE  FOR  THE  SUPERVISION  AND  EX¬ 
AMINATION  OF  INDUSTRIAL  BANKS  BY  THE  COR¬ 


PORATION  COMMISSION. 

(This  act  is  designated  as  Chapter  225  of  the  Laws  of  1923.  Up  to 
this  date  none  of  its  provisions  have  been  construed  by  the  Supreme 
Court.) 

Section  1.  Industrial  bank  defined.  The  term  “Industrial 
Bank,”  as  used  in  this  act,  shall  he  construed  to  mean  any  corpora¬ 
tion  organized  or  which  may  hereafter  be  organized  under  the  gen¬ 
eral  corporation  laws  of  this  State,  which  is  engaged  in  lending 
money  to  be  repaid  in  weekly  or  monthly  or  other  periodical  install¬ 
ments,  or  principal  sums,  as  a  business :  Provided ,  however,  this 
definition  shall  not  be  construed  to  include  building  and  loan  associa¬ 
tions  or  commercial  or  savings  banks. 

o 

Sec.  2.  Manner  of  organization.  Corporations  may  be  organ¬ 
ized  under  this  act  in  the  same  manner  as  provided  for  corporations 
authorized  under  the  chapter  on  Corporations. 

Sec.  3.  Corporate  title.  Every  corporation  incorporated  or  re¬ 
organized  pursuant  to  the  provisions  of  this  act  shall  be  known  as  an 
industrial  bank,  and  may  use  the  word  “bank”  as  part  of  its  corpo¬ 
rate  title. 

Sec.  4.  Capital  stock.  The  amount  of  capital  stock  with  which 
any  industrial  bank  shall  commence  business  shall  not  be  less  than 
twenty-five  thousand  dollars  ($25,000)  in  cities  or  towns  of  fifteen 
thousand  population  or  less ;  nor  less  than  fifty  thousand  dollars 
($50,000)  in  cities  or  towns  whose  population  exceeds  fifteen  thou¬ 
sand  but  does  not  exceed  twenty-five  thousand ;  nor  less  than  one 
hundred  thousand  dollars  ($100,000)  in  cities  or  towns  whose  popu¬ 
lation  exceeds  twenty-five  thousand;  the  population  to  be  ascertained 
by  the  last  preceding  National  census :  Provided,  that  this  section 
shall  not  apply  to  industrial  banks  organized  and  doing  business 
prior  to  its  adoption. 

Sec.  5.  No  commissions  for  sale  of  stock.  The  capital  stock 
sold  by  any  industrial  bank  in  process  of  organization,  or  for  an 
increase  of  the  capital  stock,  shall  be  accounted  for  to  the  bank  in 
the  full  amount  paid  for  the  same.  No  commission  or  fee  shall  be 


301 


Industrial  Banks 


paid  to  any  person,  association,  or  corporation  for  selling  sncli  stock. 
The  Corporation  Commission  shall  refuse  authority  to  commence 
business  to  any  industrial  bank  if  commissions  or  fees  have  been 
paid,  or  have  been  contracted  to  be  paid  by  it,  or  by  any  one  in  its 
behalf,  to  any  person,  association,  or  corporation  for  securing  sub¬ 
scriptions  for  or  selling  stock  in  such  bank. 

Sec.  6.  Powers.  In  addition  to  the  general  powers  conferred 
upon  corporations  formed  under  the  chapter  on  Corporations,  every 
industrial  bank  shall  have  the  following  powers : 


1.  To  loan  money  on  real  or  personal  security,  and  reserve  lawful 
interest  in  advance  upon  such  loans,  and  to  discount  or  purchase 
notes,  bills  of  exchange,  acceptances  or  other  choses  in  action. 

2.  To  sell  or  offer  for  sale  its  secured  or  unsecured  evidences  or 
certificates  of  indebtedness  or  investment,  and  to  receive  from  in¬ 
vestors  therein  or  purchasers  thereof  payments  therefor  in  install¬ 
ments  or  otherwise,  with  or  without  an  allowance  of  interest  upon 
such  payments,  whether  such  evidence  or  certificates  of  indebtedness 
or  of  investment  be  hypothecated  for  a  loan  or  not,  and  to  enter  into 
contracts  in  the  nature  of  a  pledge  or  otherwise  with  sncli  investors 
or  purchasers  with  regard  to  such  evidences  or  certificates  of  in¬ 
debtedness  or  of  investment,  and  no  such  transaction  shall  in  any 
way  be  construed  to  affect  the  rate  of  interest  on  such  loans. 

3.  To  charge  for  a  loan  made  pursuant  to  this  section  one  dollar 
for  each  fifty  dollars  or  a  fraction  thereof  loaned, -up  to  and  including 
loans  of  two  hundred  and  fifty  dollars,  and  for  loans  in  excess  of  two 
hundred  and  fifty  dollars,  one  dollar  for  each  two  hundred  and  fifty 
dollars  excess  or  fraction  thereof,  to  cover  expenses,  including  any 
examination  or  investigation  of  the  character  and  circumstances  of 
the  borrower,  comaker,  or  surety.  An  additional  fee  of  five  dollars 
may  be  charged  on  such  loans  where  same  are  secured  by  mortgage 
on  real  estate.  Ho  charge  shall  be  collected  unless  a  loan  shall  have 
been  made. 


4.  To  establish  branch  offices  or  places  of  business  within  the 
county  in  which  its  principal  office  is  located,  and  elsewhere  in  the 
State,  after  having  first  obtained  the  written  approval  of  the  (  oi- 
poration  Commission,  which  approval  may  be  given  or  withheld  1>\ 
the  Corporation  Commission  in  its  discretion:  1  rovided,  that  the 
Corporation  Commission  shall  not  authorize  the  establishment  ot  an\ 
branch  the  paid-in  capital  of  whose  parent  bank  is  not  sufficient  in 
an  amount  to  provide  for  the  capital  of  at  least  twenty-five  thousand 


302 


Banks  and  Banking 


dollars  ($25,000)  for  the  parent  bank  and  at  least  twenty-five  thou¬ 
sand  dollars  ($25,000)  for  each  branch  which  it  is  proposed  to  he 
established  in  cities  or  towns  of  fifteen  thousand  population  or  less ; 
nor  less  than  fifty  thousand  dollars  ($50,000)  in  cities  or  towns 
whose  population  exceeds  fifteen  thousand  hut  does  not  exceed  twenty- 
five  thousand ;  nor  less  than  one  hundred  thousand  dollars  ($100,000) 
in  towns  whose  population  exceeds  twenty-five  thousand. 

Sec.  7.  Restriction  on  powers.  dSTo  industrial  bank  shall — 

1.  Make  any  loan  under  the  provisions  of  this  article  for  a  longer 
period  than  one  year  from  the  date  thereof :  Provided ,  however ,  that 
loans  upon  real  estate  security  may  be  made  for  a  period  not  exceed¬ 
ing  two  years. 

2.  Deposit  any  of  its  funds  in  any  banking  corporation  unless  such 
corporation  has  been  designated  as  such  depositary  by  a  vote  of  a 
majority  of  the  directors,  or  of  the  executive  committee,  exclusive  of 
any  director  who  is  an  officer,  director,  or  trustee  of  the  depositary  so 
designated,  present  at  any  meeting  duly  called  at  which  a  quorum  is 
in  attendance,  and  approved  by  the  Corporation  Commission. 


Sec.  8.  Limit  of  loans.  The  total  liability  to  any  industrial 
bank  of  any  person,  corporation,  company  or  firm,  for  money  bor¬ 
rowed,  including  in  the  liabilities  of  the  company  or  firm  the  liabili¬ 
ties  of  the  several  members  thereof,  shall  at  no  time  exceed  ten  per 
cent  of  the  actually  paid-up  capital  and  surplus  of  such  industrial 
bank,  but  the  discount  of  bona  fide  bills  of  exchange  or  acceptances 
drawn  against  actually  existing  values,  and  the  discount  of  commer¬ 
cial  or  business  paper  actually  owned  by  the  person  or  persons,  cor¬ 
poration,  company  or  firm  negotiating  the  same  shall  not  be  con¬ 
sidered  money  so  borrowed. 


Sec.  9.  Directors.  At  least  three-fourths  of  the  number  of  di¬ 
rectors  of  any  industrial  bank  shall  be  residents  of  the  State  of  North 
Carolina. 

Sec.  10.  Officers  and  employees  shall  give  bond.  The  active 
officers  and  employees  of  any  industrial  bank,  before  entering  upon 
their  duties,  shall  give  bond  to  the  bank  in  a  bonding  company  au¬ 
thorized  to  do  business  in  North  Carolina  in  the  amount  to  be  re¬ 
quired  by  the  directors,  and  in  such  form  as  may  be  prescribed  or 
approved  by  the  Corporation  Commission.  The  Corporation  Com¬ 
mission,  or  directors  of  such  bank,  may  require  an  increase  of  the 
amount  of  such  bond  whenever  they  may  deem  it  necessary.  If  in- 


Industrial  Banks 


303 


jured  by  the  breach  of  any  bond  given  hereunder,  the  bank  so  injured 

may  put  the  same  in  suit  and  recover  such  damage  as  it  may  have 
sustained. 

*  II*  Supervision  and  examination.  Every  industrial  bank 
now  or  hereafter  transacting  the  business  of  an  industrial  hank,  as 
defined  by  this  act,  whether  as  a  separate  business  or  in  connection 
with  any  other  business  under  the  laws  of  and  within  this  State,  shall 
be  subject  to  the  provisions  of  this  act,  and  shall  be  under  the  super¬ 
vision  of  the  Corporation  Commission.  The  Corporation  Commis¬ 
sion  shall  exercise  control  of  and  supervision  over  the  industrial 
banks  doing  business  under  this  act,  and  it  shall  be  its  duty  to  execute 
and  enforce,  through  the  Chief  State  Bank  Examiner  and  the  State 
bank  examiners  and  such  other  agents  as  are  now  or  may  hereafter 
be  created  or  appointed,  all  laws  which  are  now  or  may  hereafter  be 
enacted  relating  to  industrial  banks  as  defined  in  this  act.  For  the 
more  complete  and  thorough  enforcement  of  the  provisions  of  this  act 
the  Corporation  Commission  is  hereby  empowered  to  promulgate 
such  rules,  regulations  and  instructions,  not  inconsistent  with  the  pro¬ 
visions  of  this  act,  as  may,  in  its  opinion,  be  necessary  to  carry  out 
the  provisions  of  the  laws  relating  to  industrial  banks  as  herein  de¬ 
fined,  and  as  may  be  further  necessary  to  insure  such  safe  and  con¬ 
servative  management  of  industrial  banks  under  its  supervision  as 
may  provide  adequate  protection  for  the  interest  of  creditors,  stock¬ 
holders,  and  the  public  in  their  relations  with  such  institutions.  All 
industrial  banks  doing  business  under  the  provisions  of  this  act  shall 
conduct  their  business  in  a  manner  consistent  with  all  laws  relating 
to  industrial  banks,  and  all  rules,  regulations  and  instructions  that 
may  be  promulgated  or  issued  by  the  Corporation  Commission. 

Sec.  12.  Corporation  Commission  may  take  charge,  when.  The 

Corporation  Commission  may  forthwith  take  possession  of  the  busi¬ 
ness  and  property  of  any  industrial  bank  to  which  this  act  is  appli¬ 
cable  whenever  it  shall  appear  that  such  industrial  bank : 

1.  Has  violated  its  charter  or  any  laws  applicable  thereto; 

2.  Is  conducting  its  business  in  an  unauthorized  or  unsafe  manner ; 

3.  Is  in  an  unsafe  or  unusual  condition  to  transact  its  business ; 

4.  Has  an  impairment  of  its  capital  stock; 

5.  Has  refused  to  pay  its  holders  of  certificates  of  indebtedness  or 
investment  in  accordance  with  the  terms  upon  which  such  ceitificates 
of  indebtedness  or  investment  were  sold ; 


304 


Banks  and  Banking 


6.  Has  become  otherwise  insolvent ; 

7.  H  as  neglected  or  refused  to  comply  with  the  terms  of  a  duly 
issued  lawful  order  of  the  Corporation  Commission ; 

8.  Has  refused,  upon  proper  demand,  to  submit  its  records,  affairs, 
and  concerns  for  inspection  and  examination  to  a  duly  appointed  or 
authorized  examiner  of  the  Corporation  Commission ; 

9.  Its  officers  have  refused  to  be  examined  upon  oath  regarding  its 
affairs. 

Such  banks  may,  with  the  consent  of  the  Corporation  Commis¬ 
sion,  resume  business  upon  such  terms  and  conditions  as  may  be 
approved  by  it. 

Sec.  13.  Sections  of  general  banking  act  apply.  That  sections 
seven,  eight,  nine,  sixty-four,  sixtv-six,  sixty-seven,  sixty-nine, 
seventy-two,  seventy-three,  seventy-four,  seventy-five,  seventy-six, 
seventy-seven,  seventy-eight,  seventy-nine,  and  eighty,  of  chapter  four 
of  the  Public  Laws  of  North  Carolina  of  one  thousand  nine  hundred 
twenty-one,  relating  to  the  supervision  and  examination  of  commer¬ 
cial  banks,  shall  be  construed  to  be  applicable  to  industrial  banks, 
in  so  far  as  they  are  not  inconsistent  with  the  provisions  of  this  act. 

Sec.  14.  Directors,  officers,  etc.,  accepting  fees,  etc.  Ho  gift, 
fee,  commission,  or  brokerage  charge  shall  be  received,  directly  or 
indirectly,  by  any  officer,  director,  or  employee  of  any  industrial 
bank  doing  business  under  this  act,  on  account  of  any  transaction  to 
which  such  industrial  bank  is  a  party.  Any  officer,  director,  em¬ 
ployee,  or  agent  who  shall  violate  the  provisions  of  this  section  shall 
be  guilty  of  a  misdemeanor  and  shall  be  and  thereafter  remain  in¬ 
eligible  as  an  officer,  director,  or  employee  of  any  industrial  bank 
doing  business  under  this  act.  Nothing  in  this  section  shall  be  con- 
strued  to  prevent  the  payment  of  necessary  and  proper  attorney’s 
fees  to  any  licensed  attorney  for  professional  services  rendered. 

Sec.  15.  Conflicting  laws  repealed.  That  all  laws  and  clauses 
of  laws  in  conflict  with  this  act  and  the  provisions  of  this  act  be  and 
the  same  are  hereby  repealed. 

Sec.  16.  In  force,  when.  This  act  shall  be  in  force  from  and 
after  its  ratification. 


INDEX 


Acceptances  by  bank,  297. 

Accounts ;  manner  of  keeping,  prescribed,  254. 

Assets ;  individual  liability  of  stockholders  as,  269. 

Bank ;  word  defined,  251. 

Bank  acceptances,  297. 

Banking  Act ;  certain  sections  apply  to  industrial  banks,  304. 

Banking  hours ;  exercise  of  banking  powers  outside  of,  281. 

Bills  of  exchange  discounted,  257. 

Board  of  directors.  See  Directors. 

Branch  banks,  260.  . 

Building  and  loan  associations  not  under  Corporation  Commission,  _o  . 

Capital  stock.  See  also  Stock, 
amount  required,  263. 

amount  of.  paid,  necessary  to  begin  business,  252,  263. 
falsely  advertising  amount  of,  penalty  for,  264. 
impairment  of,  made  good,  how,  264. 
increase  and  decrease  of,  263. 
of  industrial  banks,  300. 

Cashier;  authority  to  represent  bank,  282.  See  Offieeis,  e  c. 
liability  of,  for  allowing  overdrafts,  290. 
unauthorized  act,  273. 

Certificates  of  deposit ;  issued  only  for  money,  l.  1. 

falsely  issuing,  penalty,  273. 

Charter  of  bank ;  authority  for  issuing,  251. 

Check  ■  certain  notations  on,  prohibited,  -95. 

liability  for  erroneous  payment  of,  287,  290. 

nonpayment  through  error,  -8,  . 

no  assignment  of  deposit,  289. 
payment  of,  generally,  286. 

fiduciaries’,  liability,  288. 

minor’s,  288. 

Collections ;  authority  and  acts  in  making,  292. 
certain  notations  on  checks  prohibited,  -9o. 
compensation  for  making,  -9->.  ^ 

depositor's  note  an  order  to  pay,  293. 
failure  of  bank  to  fix  liability,  296. 
effect  of  endorsements  guaranteed,  -do. 
endorsement  for,  292,  29- >. 
failure  to  make,  296. 
payment  of,  by  drawee  bank.  29o. 

protest  not  allowed,  when,  296.  collection  291. 

relation  between  bank  and  depositor  foi  collect 

subagents  making,  ^ 

title  to  papers  received  as,  21  *  . 

Commercial  paper  defined,  257. 

Consolidation  of  banks,  261. 

Control  of  banks,  251-258. 


306 


Index 


Corporation  Commission ;  authorizes  bank  to  open,  when,  252,  260. 
bond  of  bank  officers  increased  by,  271. 
branch  banks,  duties  as  to,  260. 
cannot  authorize  bank  to  open,  when,  301. 
communications  from,  to  State  banks,  254. 
duties  as  to  consolidation  of  banks,  261. 

respecting  reorganization  of  banks,  262. 
when  capital  impaired,  264. 
liquidation  of  banks  approved  by,  275. 
may  refuse  permission  to  charter,  251. 
passes  on  charter,  251. 
power  to  require  removal  of  officers,  255. 

suspend  limitations  on  loans,  257. 

investments,  256. 

prescribes  manner  of  keeping  accounts,  254. 

receiver  of  bank  appointed  at  instance  of,  276. 

reports  to,  of  condition  of  banks,  252. 

refuses  permission  for  bank  to  open,  when,  264,  252,  260. 

supervises  State  banks,  251-258. 

takes  charge  of  State  bank,  when,  275. 

industrial  bank,  when,  303. 

Corporation  law  applicable  to  banks,  260. 

Creditors ;  who  are,  278. 

Debtors ;  who  are,  278. 

Depositor ;  note  of,  an  order  to  bank  to  pay,  293. 
relation  between  bank  and,  284,  291. 
set-off,  by,  286. 

Depositories  designated  for  reserve,  258. 

Deposits ;  application  of,  to  debts  due  bank,  285. 

application  of  partnership,  to  debts  of  partners,  285. 

partners,  to  debts  of  partnership,  285. 

defined,  283. 
fiduciaries’,  2SS. 

general,  do  not  bear  interest,  285. 
minors,  286. 

officer’s  duties  as  to,  representing  bank,  283. 

repayment  of,  284. 

right  of  bank  to  receive,  283. 

title  to,  284. 

valuables,  for  safe-keeping,  291. 

Directors*;  accepting  fee  or  gift  liable,  274,  304. 
committees  of,  270. 
declare  dividends,  how,  266. 

stock  dividend  out  of  surplus,  when,  266. 
depository  for  reserve  designated  by,  258. 
direct  branch  banks,  263. 
dividend  declared  by,  266. 
exercise  powers  of  bank,  259. 
impairment  of  capital,  duties  as  to,  264. 


IxDEX 


30 


Directors — continued. 

investment  limitation,  suspension  requested  by,  250. 
letters  from  Corporation  Commission  seen  by,  254. 
loan  limitation,  suspension  requested  by,  257. 
liability  of,  271., 

for  misfeasance,  273. 

publishing  false  reports,  273. 
oath  of,  270. 
of  industrial  banks,  302. 
prescribe  terms  as  to  deposits,  283. 
qualifications  of,  270. 
stock  book  provided  by,  265. 

Discounts ;  powers  and  restrictions  in  making,  297-299. 
rate  of,  297. 
rules  as  to,  297-299. 

Dissolution  of  corporation,  276-280. 
effect  of,  278. 

enforced  by  Corporation  Commission  or  creditors,  276. 

Dividends ;  declared,  how,  266. 
lien  of  bank  on,  267. 

Embezzlement  by  officers,  employees,  etc.,  273. 

Examinations ;  made  by  bank  examiner,  254,  303. 
committee  of  directors  make,  270. 
examiner  may  arrest  officer,  254. 
of  industrial  banks,  303. 
powers  of  examiner  in  making,  254. 

Exchange,  rates  of,  295. 

Executive  committee  of  directors,  270. 

False  certification  by  officer,  penalty  for,  273. 

False  entries  made  by  officer,  employee,  etc.,  liability,  273. 

Federal  Reserve  System  ;  State  banks  may  join,  263. 

Forged  paper,  liability  for  payment  of,  290. 

Formation  of  State  banks,  259. 

Function  and  dealings  of  bank,  281-299. 

Incorporation  of  State  banks,  259. 

Industrial  banks,  300-304. 

Insolvency ;  defined,  274. 

transfers  affected  by,  27S. 

Insolvent  bank  receiving  deposits ;  liability,  273. 

Interest,  297. 

Investments ;  limitation  on,  255. 

limitation  suspended,  when,  256. 

Lien  of  bank  on  stock  or  dividends,  267. 

Limitations ;  on  loans,  256. 
on  investments,  255. 

Liquidation  of  corporation,  275-2S0. 

Loans,  296-299. 

collateral  security  to,  297. 
defined,  256,  257. 


308 


IXDEX 


Loans — contin  ucd. 

limitation  on  State  commercial  banks,  256. 

industrial  banks,  302. 
suspended,  when,  257. 
mistake  in  cancelling,  299. 
powers  and  restrictions  in  making,  296. 

Morris  Plan  Banks :  certain,  not  supervised,  251. 

Net  earnings  defined,  265. 

Officers,  agents,  employees.  See  also  Directors, 
accepting  gift  or  fee,  liable,  274,  304. 
allowing  overdrafts,  liable,  290. 
authority  in  dealing  in  bills,  notes,  etc.,  282. 
bond  given  by,  271.  302. 

certifying  check  without  charging  it ;  liability,  274. 
cannot  pay  personal  debts  from  bank’s  funds,  282. 
committing  offense  against  banking  laws,  liable,  274. 
embezzling  funds  ;  liability,  273. 

fictitiously  borrowing  money  to  defraud  bank  or  other  person,  273. 

liability  for  allowing  overdrafts,  273. 

lending  money  to  insolvent  or  fictitious  corporation,  273. 

making  false  certification,  liable,  273. 

notice  to,  effect  on  bank,  283. 

of  insolvent  bank  receiving  deposits,  273. 

removal  of,  on  demand  of  Commission,  255. 

representation  of  bank  by  officers,  etc.,  282. 

representation  by,  bank  bound  by,  283. 

wrongful  acts  of,  283. 

Organization  of  State  commercial  banks,  259. 

industrial  banks,  300. 

defective,  does  not  excuse  president,  when,  260. 

Overdrafts ;  liability  for  allowing,  290. 

Par  clearance ;  law  against  requiring,  295,  296. 

Powers  and  duties  of  State  banks,  259,  301,  302. 
before  beginning  business,  260. 
liow  exercised  and  limited,  281. 
exercised  outside  of  banking  hours,  2S1. 

President ;  liability  of,  272.  See  also  Officers,  etc. 

Protest  not  allowed,  when,  296. 

Receivership ;  bank  under,  still  supervised  by  Commission,  277. 
books  of  defunct  bank  deposited,  where,  278. 
claims ;  payment  of,  279. 
presentation  of,  279. 
proof  of,  279. 

debtor  and  creditor  defined,  27S. 
general  law  of,  applicable,  278. 
receiver’s  powers  and  duties,  276. 
rights  of  debtor  to  set-off,  279. 

Regulation  of  State  banks,  251-258.  ■ 

Reorganization  of  State  banks,  262. 


Index 


309 


Reports  of  condition  of  State  banks,  252. 

Representations  by  bank  officers,  282. 

Reserve  depositories  designated  by  Corporation  Commission,  258. 

Resumption  of  business  after  being  closed,  276. 

Rules  of  bank,  change  of,  281. 

Secretary  of  State ;  duties  of,  as  to  charter,  251. 

Set-off  or  counterclaim,  279,  285. 

Stock.  See  also  Capital  Stock. 

assessments  upon,  to  make  good  capital  impairment,  264. 

stock  sold  if  assessment  unpaid,  265. 
book  for  transfer  of,  provided,  265. 
commission  or  fee  for  sale  of,  not  allowed,  264,  300. 
sold  if  subscription  unpaid,  267. 
transferer  of,  liable  when,  269. 

Stockholder ;  defined,  267. 
liability  of,  268,  269. 

an  asset,  268. 
rights  of,  268. 

Stockholder’s  book,  265. 

Supervision  of  State  banks,  251-258,  303. 

Surplus ;  defined,  265. 
purpose  of,  265. 
used,  how,  266. 

Trade  acceptances ;  defined,  257. 
discounted,  257. 

Transfer  book,  265. 

Undivided  profits  defined,  265. 

Ultra  vires  acts,  281. 

Usury,  297. 

Vice  President,  liability  of,  272. 


/ 


mmtm 


. 

^  '  '  A..  Y  :  .  eJ 

•V.YY^.vV  , 

>  )  $  fvl'-'  Tf.  ■' N 5 ' ;  . 

'  ’*  .  '*A  ;  •  t  '- 

. 


v  ^ -Y  Y  " ;  ,  v '  , 

. 

.-.'i  -  .j  ..  J  A  -  -  ;  ..  ::  .  .  U  .  •>'. 

*.4>  ‘V,  r  -  •  ?  /*'  .  .’•jA-.--'' 


■ 

■ 

■ 

' 


■,;■  C-YVYTvH ■•■■  AO  :.  ;  '  ■  :A 

Co..  Tv  Co- ••  \  v  -  r  Y 


t  •)  ■•••  •  ■■■• 


h  .  V. ,  * .-  -  ...  -  ,  .,  -  •. .  .. 

. 

■ 


t 

8gKSu<v- 


...X 


'■ 

' 

.  :  4^//  V  :  .  ,•'■;•■  : 


A'-r,.-:  v":Y':KYV 


. 

’  . 


.1*  '  •  .•  ••.  • 


UNIVERSITY  OF  N.C.  AT  CHAPEL  HILL 


* 

- 

.  '  y.-yy 


933 


0003958 

FOR  USE  ONLY  IN 

THE  NORTH  CAROLINA  COLLECTION 


a  I  s.v- 


I INCPS  S1499 


sBWV 


^Vr'***® 


SI1 


'V 

»  1  ym 
Kj//^ 


